Posted 9th August 2023

Cryptocurrencies vs NFTs: Understanding the Core Differences

Following the creation of cryptocurrencies in 2009 with Bitcoin, digital asset ownership has changed dramatically. Then, when non-fungible tokens (NFTs) were created in 2017, it introduced another facet of ownership that has redefined how investors store and own assets.

Despite their similarities, cryptocurrencies and NFTs are different in many ways. Now, as both begin to enter the mainstream and become a mainstay in investment options, investors are beginning to wonder what these differences are and how they can affect their short and long-term strategies.

The core differences between cryptocurrencies and NFTs

There are many key differences between owning a cryptocurrency and an NFT, including how you can show ownership, the mechanics behind the tokens, how they’re priced and much, much more.

Cryptocurrency vs NFT

What is a cryptocurrency?
A cryptocurrency is a digital asset that uses cryptography to secure and process transactions. They exist entirely as digital ‘tokens’ on a digital database or ‘ledger’ that records all transactions called a blockchain. Additionally, cryptocurrencies do not require an intermediary or third party to transact with or to verify transactions by using peer-to-peer (P2P) technologies.

What are NFTs?
NFTs are cryptographic assets that represent ownership or proof of authenticity for a specific unique digital asset. Unlike cryptocurrencies, each NFT is distinct and cannot be exchanged for another NFT on a like-for-like basis as they use unique identifiers and metadata.

Are cryptocurrencies NFTs?

In short, no. Cryptocurrencies are digital assets that are not classified as non-fungible tokens. For example, Bitcoin is not an NFT. 

The same can also be applied to NFTs, as they are classified differently to cryptocurrencies and use a different token standard. For example, an NFT such as a CryptoPunk or a Bored Ape Yacht Club is not a cryptocurrency.

Fungible vs non-fungible

Next is the matter of fungibility. Assets such as FIAT, physical metals and cryptocurrencies are fungible. This means they can be traded and exchanged for one another for equal value. For example, one dollar will always equal one dollar and one Bitcoin will always equal one Bitcoin. Additionally, each unit is not a unique asset like an NFT. 

With NFTs, which are non-fungible, the assets cannot be replaced and use a digital signature that’s authenticated by the blockchain.This makes exchanging an NFT for another one not possible.

Use cases

Cryptocurrencies primarily serve as a mediums of exchange or store of value, alongside other use cases such as an alternative investment product to stocks and commodities, a utility token and a decentralised means of payment and value transfer.

Stablecoins such as Tether also provide another use in dollar-pegged assets that can be traded for the value of one dollar at all times.

NFTs offer various use cases for investors, including verifiable digital art and collectible ownership, in-game assets for virtual worlds and metaverses, tokenised “real-world” assets such as tickets and real estate and the opportunity to manage intellectual property rights and licensing.

Ownership of NFTs and cryptocurrencies

Cryptocurrencies can be stored in a software wallet or held on a platform like Kinesis. From there, they can be sent, traded and received as long as the wallet is compatible with the blockchain.

NFTs and cryptocurrencies can both be stored in the same wallet, but the wallet has to have the capability for the user to view and receive athe NFT as they use different token classifications than cryptocurrencies. For example, the ETH token on the ethereum blockchain is ERC-20, whilst the token standard for NFTs is ERC-721. This means has to be both ERC-20 and ERC-721 compliant to hold both.

In terms of provable ownership, NFTs offer verifiable proof of ownership and traceability through a unique digital signature linked to the wallet address. The blockchain records the ownership history and transactional details of each NFT, providing transparency and ensuring the asset’s uniqueness.

In addition, NFTs have seemingly revolutionised the concept of ownership and provenance in the digital realm. They represent unique digital assets with verifiable ownership and value, opening up new possibilities for creators, collectors, and investors. 

Determining their value

The value of cryptocurrencies is primarily determined by factors such as market demand, utility, scarcity, and adoption, and can be priced according to their market value. For example, Bitcoin is the leading cryptocurrency by market capitalisation largely due to its longevity, its reputation and performance within the crypto space.

The value of NFTs is often driven by factors like uniqueness, provenance, creator reputation, and cultural significance. Additionally, the worth of an NFT can be derived from its scarcity, popularity, and emotional appeal to collectors or enthusiasts. 

For example, the Bored Ape Yacht Club is the most popular NFT collection, and has therefore generated the most appeal of owning one alongside being one of the most expensive NFTs to purchase.

Should I invest in NFTs or cryptocurrencies?

This decision is best made on your investment strategy. Cryptocurrencies can be bought in any amount at the current market price, are liquid and can be sold at any time regardless of whether you’ve made a profit or a loss.

NFTs can be illiquid and take longer to liquidate, which means you’ll have to allocate a portion of your portfolio and have no access to until the NFT sells.

There are also many more options when it comes to investing in cryptocurrencies. The leading assets available all have stellar reputations, a working product and a variety of price points depending on your strategy. NFTs on the other hand can take more research, commitment to a community and upfront capital to purchase the NFT outright.

If you enjoy digital art and have the capital, then investing in NFTs may be more sorted to you. However, if you looking to divewrsify your portfolio into other digital assets then cryptocurrencies would be a better option for your strategy.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not digital asset or cryptocurrency trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.