Digital currencies are emerging as one of the most talked about assets and forms of investments by different traders, regulators, and investors from other parts of the world. Virtual currency is emerging as real-world money in the electronic form that allows a person to buy and sell many things apart from these currencies. Also, the person possessing them can conduct different kinds of transactions in various sectors of an economy that promote the use of such virtual assets.
To understand the relationship, if any, that exists between cryptocurrencies and NFTs, and it is essential to set the basics right.
Cryptocurrency is a digital currency that uses the internet and blockchain technology. The cryptocurrency is issued with a system set up privately to ensure safety and transparency. However, it has its taste of pros and cons. It is not centralized, and no government authority opts for its regulation.
NFTs stand for non-fungible tokens. They belong to the family of digital assets that help to denote some items belonging to the real world. Some of them are as follows:
- Music and other talents
- Fashion industry
- Businesses and other options
They are widely used terms and help represent different kinds of entities. Also, they can help in the monetization of any skill or talent.
Some features of NFTs are as follows:
- It is one of a kind and helps represent the products, details, items, and skills of the real world.
- They are not interchangeable.
- The significant difference between NFTs and cryptos is that the former is non-fungible, and the latter belongs to the fungible category. So, the trading process of both is also different.
- The management is with the help of a digital ledger, and the transactions are completed online.
Existing Relationship Between Cryptocurrencies And NFTs
There has been thin research on the research to know about the know-how of NFTs. The main reason is that NFTs have not been in the game for too long. They are pretty fresh. Some research conducted at Dublin City University highlights that the active participants of the NFT market possess the awareness that there is a strong crossover within the participants of both these markets.
One of the main reasons behind this is that whenever an investor, or any novice for that matter, plans to go for an NFT purchase, cryptocurrencies are used for making the payments. Now, that’s more like a nontrivial degree of complexity for many people interested in this from different parts of the world.
Another study that the Blockchain Research Lab has conducted highlights that if there is a potential drop in the value of cryptocurrencies on trading platforms, it will directly mean a reduction in the purchasing power of the possible audience. Also, it will directly impact the NFT market, resulting in depression. On the other hand, if there is an appreciation of cryptocurrencies in any part of the world, it will have an overall effect. Also, the investors will be pushed to begin their search for new opportunities that will function as an alternative form of investment for the target audience. It is more evident in the presence of ETH, the standard NFT denomination. So, both are closely knitted.
But, the question is, to what extent does this correlation exist?
Other market trends suggest that there has been an existence of correlation in the first two quarters of 2021. However, many other data analysts and experts suggest no correlation exists post that time.
Strangeness In The Relationship
Both share a strange relationship. Strange in the sense that they shared a family-like experience in the beginning, but with time, they have reached the maturity stage. In simple words, NFTs are new, and when they were in their mushrooming scene, they depended on crypto owing to their need for price actions. As they continue to grow and mature, more has been breaking away.
2021 was a game changer. The markets were planning a comeback after the outbreak of the coronavirus pandemic. During the same time, the crypto market was on its toes, followed by the boom of NFTs. OpenSea is one of the trading platforms for NFTs. During this time, it hit the headlines for making a record sales volume worth $5 billion.
The trends have been attractive. That’s why some cryptocurrency researchers and observers think they have a reverse correlation. A reverse relationship means a rise in the price of one will result in the reduction of the cost in another.
Other segments of the investors and observers have highlighted that both should think twice before moving in sync. It is because if NFTs sink with others, it brings higher chances of disruption in the social relations between countries owing to their interconnectivity.
Another point of similarity is that they are accessible in the form of a digital public ledger. Hence, you can expect transparent transactions on trading platforms like BITCODE-PRIME.CLOUD. Also, the confidentiality degree is high in them. It makes them one of the most demanded and traded forms of trading and investment globally.
Difference Between Cryptocurrency And NFTs
However, they are different from each other, too. Also, the difference between both them and digital currencies exists. The differences are as follows:
- Cryptocurrency allows exchange in the form of a sale and purchase. However, it is not permitted in NFTs. It is because they are unique and are used for trading skills and assets belonging to the real world.
- The significant difference between them is that the cryptocurrency values are economical. It draws its value from various forms, like a utility degree, a currency, and even a form of investment. The crypto dealings and exchanges will not result in a depreciated value. On the contrary, NFTs possess economic and non-economic value. The primary purpose of NFTs is the monetization of skills.
So, that’s all about the love-hate relationship between cryptos and NFTs. They belong with each other and are good when they are apart from each other. Both have separate bases and need to be fulfilled. You can choose the form of investment that works best for you.