As technology advances, so too do digital assets. Lots of fascinating ideas are materializing, changing the whole concept of money to the core. But to roam these corners of the unknown, we first need to understand the basics. So, we’ve got three different types of tradable items to consider and understand why exactly they’re not the same, and what the main idea of their use is. Let’s jump in.
Digital currency
Digital currency has many names. You can call it digital money, virtual currency, electronic currency or cybercash — whatever you prefer. Essentially, it is an electronic form of real-world money that allows you to conduct transactions within ecosystems of varying size and sometimes even to any part of the world, even though digital currency is invisible and intangible compared to crisp banknotes. Then you may be left with the question: Is there a solid difference between cryptocurrency and digital currency?
In short: yes and no. Digital currency is an umbrella term under which cryptocurrencies fall, and mostly facilitates the movement of fiat currency — money issued and backed by a government. You see, the main point here is that all cryptocurrencies are digital currencies, but not all digital currencies are cryptocurrencies, as cryptocurrencies can only be built on a blockchain. Central bank digital currencies, for example, are government-approved and, along with their alter-ego fiat currencies, form a centralized ecosystem regulated by a central point of authority, such as a central bank. Сryptocurrencies like Bitcoin or Litecoin are examples of decentralized digital currencies — they’ve got nothing to do with banks or governments, and they are not owned or controlled by a central source of authority.
So, when you think about “cryptocurrency vs. digital currency,” there should actually be no “vs.” since they don’t contradict each other, but are two sides of the same coin
Cryptocurrency
Crypto has added a whole new dimension to the concept of globally accepted money. It offers financial opportunities beyond any existing limits — including geographical and political limits — which has sighed a breath of fresh air to the aging financial systems and provided a glimmer of hope in our turbulent world. The decentralized nature of many cryptocurrencies and blockchains makes them absolutely independent of any centralized regulation and authority. The only price factor here is public demand triggered by world events, whether they may be new legislative measures to regulate cryptocurrencies, the need for a hedge against inflation, or increased mass adoption. Remember we told you that reading the news is very useful in trading of any kind? It’s still true!
Demand is hugely based on public opinion. Like in Billy Joel’s song “It’s a matter of trust,” if lots of users stop trusting a particular cryptocurrency, then it’s probably doomed (take a look at the most impressive collapse of the crypto epoch — the Terra Luna fall). Thanks to their underlying blockchain technology, all crypto transaction data is recorded on the ledger with no chance of being rewritten. However, “recorded” doesn’t necessarily mean “traceable” — the crypto concept is built upon an ideal of anonymity.
The Big Three of crypto, Bitcoin, Ethereum and Litecoin, can all be traded on Olymp Trade. If you start trading with us, you’ll see how easy it is to dip your feet into the decentralized waters. With an investment entry as low as $1, a library of crypto assets to trade and diverse learning material, you’ll wonder what you ever did without us!
Non-fungible tokens
Non-fungible tokens, or NFTs, are rapidly evolving digital assets that can represent real, authentic items and can be in the form of music, fashion, art, sports and more. They are particularly useful for verifying ownership, since the cryptographic hash of each is unique. As such, they have found a solid place in the arts sector for protecting artwork from copyright infringement and providing a transparent and clear-cut way to purchase and sell art. Once produced, or “minted,” NFTs are recorded on a digital ledger and can be traded online. They are worth whatever someone is willing to pay for them. Anyone can mint their own NFTs — the trick is to make them desirable, which is not easy. Just like in the regular market.
If we’re talking about NFTs vs. cryptocurrency, a good way to think of it is that an NFT is more an asset that’s worth a subjective amount of money (such as how much someone is willing to pay for it) rather than being money itself, while cryptocurrency is more like fiat currency in that its inherent value means it can be used for purchases and exchanges of value. Moreover, each NFT is unique. Like custom-made dolls or vintage comic books, they can be categorized as collectibles that have potential to go up in value over time.
Thankfully, not all NFTs are just a sight for sore eyes but are actually quite practical. Check out these NFT sneakers — virtual running shoes that you can use to earn valuable tokens and improve your health as a bonus. All you need is to buy them and go for a run! Nice idea, right? This year, Olymp Trade hosted the Trading Premier League tournament and created an NFT collection for the occasion, opening a whole new dimension of digital-asset experiences for Olymp Trade’s users. Go check it out!
Similarities between digital currency, crypto and NFT
- All three are accessible only through computers, smartphones and other smart devices, since they only exist in digital form.
- Cryptocurrencies and digital currencies can be traded for each other with no loss to their value. They are virtual forms of money that can be directly used to buy products and services in both physical and digital forms.
- NFTs are a product of the crypto universe. Both cryptocurrency and NFTs are based on blockchain technology, are secured in digital wallets, are recorded on immutable ledgers and represent an alternative class of investments. If you meet someone who is into NFTs, they are probably a member of the crypto community.
Differences between cryptocurrency, NFTs and digital currency
- Not all digital currencies are necessarily cryptocurrency: NFTs are not a currency, and not all digital currencies run on a blockchain, whereas cryptocurrencies can only run on a blockchain. There are still other kinds of digital currencies such as tokens purchased with fiat money that can only be used on the website or game they are purchased on. That’s right, the “gems” you can purchase for your mobile game is also a kind of digital currency.
- NFTs can always be minted, but new cryptocurrency is minted depending on its blockchain’s consensus mechanism. Moreover, the source code of some cryptocurrencies imposes an ultimate limit of coins that can be mined. For example, only 21 million Bitcoins will ever exist, the last of which is due to be mined in about 100 years from now.
- NFTs are not interchangeable (that’s the literal meaning of “non-fungible”) because they are all unique and thus hold a unique value. They differ in this sense from crypto and other digital currencies — which are, on the contrary, very much fungible. It doesn’t matter which Bitcoin you have, it will have a value identical to any other Bitcoin.
- Since each NFT is unique, they cannot be used as a purchasing medium (like a digital currency) or a mining reward (like crypto). Just the same as with real-world items, though, an NFT could be traded for the approximate value of something else. Like giving someone your Picasso painting for their Lamborghini, for example.
So, NFT vs. cryptocurrency vs. digital currency: Which is better?
As you can see, all these forms of assets are useful and promising. Each of them is an important milestone on the path of transition to the digital age: NFTs are a creative approach to digitizing things of value, Bitcoin is an exciting trading asset worth a million pizzas, and digital currency in general is the money of the new generation — some members of which have almost forgotten what paper bills look like.
We want to remind you that NFTs cannot be traded like digital currencies. So, if your main goal is to master trading, then you should probably look into crypto or regular currencies that can be successfully traded. But rest assured that whatever you choose, we will guide you through tricky trading techniques, explain how to make volatility work for you and even pick out the best technical indicators so that you don’t get lost in the woods. Learn, trade and grow on Olymp Trade, the platform designed to help you succeed!
