Cryptocurrencies such as Bitcoin and Ethereum became very popular over the past few years, with more people getting involved in the virtual currency market.
However, what many may not know is that there is a new type of digital asset emerging – Non-Fungible Tokens (NFTs).
What are NFTs?
NFTs are digital assets that represent ownership over a unique item, with each token representing a single unit of something special or rare.
Cryptocurrency can be used to purchase NFTs, but it’s important to understand how they differ from traditional cryptocurrency coins.
Cryptocurreny’s Relation to NFTs
While traditional cryptocurrencies like Bitcoin and Ethereum are each divisible into smaller units, making them “fungible” or interchangeable, NFTs are entirely unique and cannot be split or divided; hence their name ‘non-fungible’.
One way in which cryptocurrency is related to NFTs is through the use of smart contracts to facilitate transactions between buyers and sellers.
Smart contracts are code-based scripts that execute certain tasks when predetermined conditions are met; for example, one might set a contract where if Bitcoins worth X amount of dollars are sent to an address, then an associated NFT will be transferred to the buyer’s address.
This ensures that all transfers of these digital assets adhere to predetermined terms and conditions set out by both parties within the agreement.
Another way cryptocurrency relates to NFTs can be found in the usage of blockchain technology underlying these tokens.
Just like other cryptocurrencies, such as Bitcoin, Ethereum or Litecoin, every transaction involving an individually tradable non-fungible token is stored on a decentralized public ledger called the blockchain.
This allows users to track funds securely and efficiently while being able to trace back ownership records at any given point in time; thus providing ultimate transparency over these types of digital assets.
What we can conclude from this is that Cryptocurrency has played an instrumental role in powering Non-Fungible Token transactions across various industries today by providing secure payment options and immutability over ownership records, ensuring trust through automated processes facilitated by smart contracts as well as eliminating third party interference from transactions by taking advantage of distributed ledgers such as blockchains.