NFTs. Cryptocurrencies. Bitcoin. Ethereum. Web3.\u00a0To someone who has never directly interacted with these things, the crypto world can seem obtuse, opaque, and overtly strange.\u00a0<\/p>\n
All of which is completely understandable. The advent of the blockchain and the technologies it supports represent a sea-change on par with the advent of the internet itself. And just as people reacted to the early days of the internet with a wide variety of emotions that included skepticism, excitement, and outright fear, blockchain-based technology is inspiring the same gamut in people today.\u00a0<\/p>\n
The two biggest unknowns of the technology manifest in the form of cryptocurrencies and NFTs, so we\u2019ve created a simple explainer on what they are, how they interact, and the main differences between them. But before you start to wrap your head around them, you have to understand the technological infrastructure they both need to exist in the first place. That technology is called the blockchain.\u00a0<\/p>\n
What is the blockchain?\u00a0<\/h2>\n
Blockchain technology is, at its core, a new data-sharing and management system. It allows data to be stored and controlled by a democratic network of users rather than a handful of giant companies or intermediaries (think Facebook or Google). This means it can do what more traditional models of the internet, commonly referred to as Web2, can\u2019t. In this way, blockchain-based tech is being used to usher in a new iteration of the internet, which is commonly referred to as Web3<\/a>.\u00a0<\/p>\n You can think of the blockchain as a shared digital collection and record of data transactions, not dissimilar from a public ledger. Individual data transaction records are stored in blocks that link together to form a chain of bookkeeping, which is where we get the term \u201cblockchain.\u201d Transactions on the blockchain are only added to this distributed ledger if the many \u201cnodes\u201d in the system (computers dedicated to securing the system) verify them.\u00a0<\/p>\n Essentially, all parties involved in the verification process must confirm the ledger\u2019s contents. The more verifying nodes in the system, the more secure it is. Unlike hacking into Google or Apple to mess with the system, to hack a blockchain ledger, you\u2019d need to gain control over a vast amount of computers to alter it. This significantly adds to its security.\u00a0<\/p>\n So, we have this new technology that can support decentralized data transactions of all kinds<\/em>.\u00a0<\/p>\n The two most prominent types of data transactions that blockchain tech has introduced are cryptocurrencies and NFTs. They have some similarities and key interactions but are distinct from one another in some very important ways.\u00a0<\/p>\n Let\u2019s start with cryptocurrencies.\u00a0<\/p>\n Cryptocurrencies are digital currencies. The term \u201ccrypto\u201d comes from the fact that these currencies (often called digital tokens) are secured via a process called cryptography, meaning they are highly protected and just about impossible to double-spend or counterfeit.\u00a0<\/p>\n This security is achieved via various processes (including encryption algorithms, public-private key pairs, and more), which have their own controversies attached to them<\/a>. But for the purposes of this explainer, it\u2019s enough to know that cryptocurrencies are basically a digital form of money \u2014 which is why you often hear digital tokens named \u201cX-coin.\u201d<\/p>\n Bitcoin (BTC) and Ethereum (ETH) are the most well-known cryptocurrencies out there, each functioning within its own separate blockchain system. Still, there are thousands of cryptocurrencies in existence<\/a> spread across dozens of blockchain platforms. For this article, we\u2019ll stick with BTC and ETH as they are the easiest to understand and reference.\u00a0<\/p>\n Anyone can buy and sell cryptocurrencies on decentralized exchanges, like OpenSea<\/a> (a platform that also allows you to buy NFTs) and Binance<\/a>. But you\u2019ll need a place to store that digital money, so you\u2019ll have to set up a crypto wallet<\/a> before you buy any. You can use crypto to purchase things like NFTs (which we\u2019ll get into next), but many see these currencies as a trading and investment tool due to their volatility and, occasionally, their soaring values.\u00a0\u00a0<\/p>\n The key thing to understand about cryptocurrencies is that they are fungible, just like fiat currency. If you have a five-dollar bill in your wallet and someone asks you to trade it for a five-dollar bill in their wallet, you wouldn\u2019t care. Your money is fungible \u2014 any five-dollar note is as good as any other so long as it gets the job done. This is exactly how cryptocurrencies work. Five ETH in my digital wallet is interchangeable with 5 ETH in someone\u2019s else digital wallet.\u00a0<\/p>\n A quick note on safety and regulation. Because these digital currencies exist on the decentralized blockchain, transactions are streamlined and efficient. No bank intermediaries mean no international transfer fees and no governmental interference means the currency is immune to the whims of dictatorial regime leaders, for example. But it also means no third party to reimburse you if a transaction goes haywire.\u00a0<\/p>\n This, along with other legitimate worries about the state of the crypto world, exist. But it\u2019s worth noting that, despite its volatility, Web3 is unlikely to go away anytime soon. The technology is simply too useful and too valuable. There are some very compelling pros and cons to blockchain-based technology, and like any revolutionary technology in its infancy, these issues are constantly evolving.\u00a0If you\u2019re interested in learning more about them, check out our guide on cryptocurrency wallets<\/a> and how to buy and sell crypto<\/a>.\u00a0<\/p>\n Make sure you do your research and keep a level head. The media likes to exacerbate reports of doom and gloom. Likewise, take any report or article that says the world of crypto is without risk or the solution to all the world\u2019s problems with a massive grain of salt. Both perspectives are extreme, and the reality is far more interesting and nuanced.\u00a0<\/p>\n Now that you\u2019ve got a basic insight into what cryptocurrencies are and how they work, one of the best ways to further your understanding of them is to contrast them with their closely-related digital cousin, NFTs.\u00a0<\/p>\n NFT stands for non-fungible token. Like cryptocurrencies, they are also digital tokens (commonly called digital assets). But compared to cryptocurrencies, which are<\/em> fungible or interchangeable, NFTs are singular and unique. Like cryptocurrencies, they exist on the blockchain as cryptographic assets.\u00a0<\/p>\n The common comparison here involves the differences between physical currency and the unique physical objects people buy precisely for their uniqueness.\u00a0We mentioned how cryptocurrencies are fungible \u2014 any amount of ETH in your digital wallet, for example, is exactly the same in value and function as the same amount of ETH in someone else\u2019s wallet.\u00a0<\/p>\n Now, think of a physical object you own that is special to you and of which there exists only one. This might be a painting you bought, a collector\u2019s item like a baseball card or a stamp, or a first-edition print of a book you love, signed by its author.\u00a0<\/p>\n These things are non-fungible. If someone asked to trade your autographed first-edition book for a fifth-edition reprint with no signature, you would (we hope) refuse. While the two contain the same words, they are not at all interchangeable. They are non-fungible.\u00a0<\/p>\n Now, in this thought experiment, take that principle and apply it to an e-book that comes with a unique digital signature certified by its author, of which, let\u2019s say, only 25 official copies exist on the blockchain, and you\u2019ve got yourself an NFT. NFTs allow digital assets to be unique and have monetary value. If you own an NFT, that NFT is yours, and even if someone screenshots it or downloads it, seemingly \u201cstealing\u201d it, they do not own it, and the public blockchain record verifies this.\u00a0<\/p>\n The beauty of the blockchain lies in its ability to make this transformation. And it has huge ramifications, one of which is how it allows artists of all media to be properly and directly compensated for their work. As long as something can be digitized, it can be made into an NFT. Songs, GIFs, JPEGs, photographs, digital drawings \u2014 all of these can be made into NFTS.\u00a0<\/p>\n Understanding how NFTs work<\/a> requires a bit of psychological adjustment. How can a JPEG be unique and ownable if I can take a screenshot of it or download it onto my computer? That is a valid question, and it\u2019s one that everyone asks themselves at some point along their journey from Web2 to Web3.\u00a0<\/p>\n NFTs are unique digital assets. Cryptocurrencies are the digital money you use to purchase those assets. The best way to conceptualize this is through a real-world example.\u00a0<\/p>\n In October 2017, wilderness photographer Cath Simard shared an image she had taken of a lone Hawaiian road on her Instagram account<\/a>.\u00a0The photograph very quickly went viral and got shared across various social media platforms thousands of times, mostly without any credit whatsoever being attributed to Simard and entirely without any monetary compensation to speak of.\u00a0<\/p>\n This inequity is a perfect representation of many of the problems surrounding Web2. In Web2, as we all know, clicks and views almost always equate to profit. It\u2019s not difficult to imagine that at least some money was made off of Simard\u2019s work by those who shared it or the platforms it was shared on, yet none of that money went to the artist herself.\u00a0<\/p>\n Using the blockchain, however, Simard decided to authenticate the original image as an NFT<\/a>. This means she uploaded it to the blockchain infrastructure and \u201ccertified\u201d it as being the<\/em> unique, original photo she had taken of that Hawaiian road, giving it a specific digital signature that no other version of the photo will ever have.<\/p>\n Much like how a painter signs their work and inscribes its edition number, Simard\u2019s photo now had a digital fingerprint, available to be seen at any time and by anyone in the world. The image had been written into an immutable public record that proved its originality and authenticity.\u00a0<\/p>\n Simard put the unique photograph NFT up for sale. To purchase an NFT, as we\u2019ve mentioned, you need some form of cryptocurrency.\u00a0Different blockchains use different cryptocurrencies. Simard\u2019s photograph was minted (created and authenticated) on the Ethereum blockchain and sold for 100 ETH, that blockchain\u2019s fungible cryptocurrency, which at the time amounted to $303,481. Not a bad turnaround for an artist whose work had been shopped around the internet for free not long before.\u00a0<\/p>\n This perfectly encapsulates just one of the merits of NFTs. Visual artists who used to have to work with intermediary institutions like galleries, earning a fraction of the profits gained, now have an easy and direct way to be fully compensated for their work.\u00a0The other benefit of NFTs is that because the digital contracts that underlie them are customizable, artists can code in the amount of royalties they make from secondary sales. This means that each time the artwork changes hands, a cut of the profits goes to the original artist, creating a more sustainable creative economy for the industry.\u00a0<\/p>\n Musicians are taking advantage of NFTs<\/a> as well. It\u2019s a well-known fact that streaming services like Spotify, YouTube Music, Apple Music, and others treat musicians like, well, garbage. Unless you\u2019re already a massively well-known artist, you\u2019ll have a hard time making any money off of your art. Spotify, for example, pays artists between $0.003-0.005 per stream<\/em><\/a>, meaning you\u2019d need around 250 streams to make a single dollar.\u00a0Rapper and producer Black Dave<\/a> is a great example of someone who has used NFTs to their advantage, having sold songs and entire albums as NFTs for thousands of dollars at a time.\u00a0<\/p>\n Importantly, NFTs are only worth what people are willing to pay for them. Often, well-established artists will turn their existing work into NFTs and sell them for hundreds of thousands or even millions of dollars at a time precisely because they already have a following.\u00a0But many up-and-coming artists are starting to use the tech as well to make a name for themselves. Numerous NFT projects<\/a> supported by novel communities have exploded onto the scene, turning absurd profits in the process.\u00a0<\/p>\n In any case, cryptocurrencies and NFTs have changed many things in society, from how we view and appreciate art and how that art gets made and distributed to how we think about the basic concepts of economy and value and currency in the first place. Web3 is a dynamic \u2014 and yes, risky \u2014 place. But it cannot be argued that it isn\u2019t an exciting and inspirational one.\u00a0<\/p>\n<\/p><\/div>\nWhat are cryptocurrencies?\u00a0<\/h2>\n
What is an NFT?\u00a0<\/h2>\n
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What is the difference between cryptocurrencies and NFTs?<\/h2>\n
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