The age of digitization has slowly but surely been taking over almost all aspects of daily life. Some of the most well-known concepts in this pattern are NFTs (non-fungible tokens) and DeFi (decentralized finance). While they are relatively similar at their core, they perform entirely different functions in the digital world.
NFTs are essentially digital tokens of an asset that people can buy, typically artwork or something else creative and collectible. DeFi offers access to decentralized financial services that use blockchain technology, where internet users can gain the currency they need to purchase NFTs and other online-only media without the need of a middle man like a bank to complete the transaction.
The cool thing is that both NFTs and DeFi are transacted crypto and without a fiat currency or a central bank which means the supply can’t be corrupted or manipulated by governments as we see with inflation (a hidden tax) in today’s environment.
The following article is a more in-depth explanation of the differences between NFTs and DeFi. There is also a brief explanation of how NFTs and DeFi can both be used to change the online market for years to come.
What They Are Used For
NFTs are used primarily for copyright purposes to ensure that the original creator doesn’t get their work stolen by creating a digital fingerprint. DeFi is primarily used to conduct business transactions with virtual money.
NFTs are the more widely known virtual asset type. The acronym stands for “non-fungible token,” which basically means that it’s an asset that you can’t physically hold.
The most common NFTs are images, whether they are art or digital collectibles. NFTs also have a digital fingerprint attached to them by way of a smart contract. The NFT is secured in the blockchain of, say, Ethereum, and all transaction data is recorded, for example, who created it, how much it sold for when it transferred, and if there is a royalty attached for future sales.
This digital fingerprint is in place for copyright reasons to ensure that the credit always goes back to the original creator or owner of the NFT. However, if someone wishes to purchase an NFT, they will need to use a crypto wallet or app to transfer fiat currency into crypto and use the crypto, like Ethereum, to make a purchase.
This is where DeFi comes in, or decentralized finance. In the digital world, the most commonly used type of money is generally referred to as cryptocurrency. Cryptocurrency refers to any kind of virtual money, not money that you can physically hold or that comes from a fiat bank account.
Some common types of cryptocurrency are Bitcoin, Ethereum, and Polygon.
But in order to have cryptocurrency, you first need to purchase it, and DeFi is designed to help you with that. It’s essentially a virtual bank that conducts electronic transactions so that you can get more Bitcoin or Ethereum. You can also use DeFi exchanges to sell your cryptocurrency and get more real-world fiat money into your accounts.
How The Services Are Valued
NFTs are valued based on how much value is given to them. The more that an NFT is wanted, the more valuable it is. DeFi has value in that it offers people a way to purchase currency without having to go through a middleman, saving time and money in the process.
Both of the services discussed in this article have value, but that value is displayed in different ways. NFTs have a value placed upon them, while DeFi gives something valuable in exchange for something equally valuable.
How NFTs Hold Value
The image of an NFT isn’t inherently valuable; it’s usually just another image on the internet. But when it becomes desired by others for whatever reason, then the NFT stores value.
At their core, an NFT is simply an image that someone uploaded onto the internet. When it first appears, it likely doesn’t have much value. But when people start noticing it, then the value has adhered to it.
For example, an NFT can be a piece of social media that a famous person created and that someone is willing to buy. For example, Jack Dorsey, Twitter’s ex-CEO, sold his first ever Tweet as an NFT for 1630.5825601 ETH (Ethereum cryptocurrency) or the equivalent at the time of 2.9 million dollars.
The popularity of Jack Dorsey and the uniqueness of owning his first-ever Tweet obviously drove the value up.
But the opposite can happen if the NFT is considered undesirable. If an NFT isn’t deemed to be wanted for any reason, then there will be fewer people willing to bid their cryptocurrency on it. As a result, the NFT stores less value.
In fact, there are probably more NFT creators in the world that have lost money creating NFTs due to the high “gas fees” which are required to mint an NFT. If you are interested in creating NFTs, you will want to read these two articles first:
- How To Sell NFTs Without Gas Fees (or less) | Complete Guide
- The 3 Cheapest Ways to Mint an NFT: Full Breakdown
Currently, the NFT market is incredibly finicky, and the trends shoot upwards and plummet downwards extremely fast. The amount of worthless NFTs seems to increase daily, and at times, there are issues of oversaturation.
But the NFT market is still fairly young, so if it’s given some time to mature, then the value of NFTs should even out in the coming years, which looks very bright according to this article: 10 Reasons Why NFTs Will Change the World.
How DeFi Holds Value
When it comes to DeFi, its value lies in how it can unlock value for others. It’s able to convert real-world money into whatever the purchaser wants, be it Bitcoin or another popular cryptocurrency, without the need for a middleman.
Plus DeFi is run without the interference of governments and banking enterprises. The digital payment industry will be run through the blockchain keeping the greedy hands of corporate takers and their institutions out of the pot.
Essentially, DeFi transactions are made when a purchaser wants to buy a certain amount of cryptocurrencies, such as Bitcoin or Ethereum. The purchaser then uses real-world money to complete the purchase, and DeFi gives them the amount of cryptocurrency that’s equal to the amount paid.
Now said person can do what they want with their crypto. Like buying things, holding as an investment, or financing someone’s NFT project. The possibilities are almost endless.
Each of these transactions is recorded on a blockchain, which is essentially a ledger for each of the transactions the service has made that day.
Can DeFi Be Used To Purchase NFTs?
The merging of NFTs and Defi comes in the form of DeFi being used to purchase NFTs. The more cryptocurrency that’s exchanged on DeFi, the more that users can use to purchase NFTs. This will stimulate the prices of NFTs and make them more valuable.
Since NFTs and DeFi are becoming massively popular in the online world, it’s no surprise that they are starting to work together to create a valuable asset market.
The cryptocurrency that is purchased through the DeFi service can be used to buy NFTs, which attributes value to NFTs and can drive their prices up.
This can, in turn, stimulate the NFT market and create more demand for cryptocurrency. The process then repeats itself, and the NFT market’s value goes up as the market for DeFi currency increases as well.
NFTs and DeFi are coming together to create a new, virtual age market on the internet. However, understanding the differences between them and how they hold value is essential to understanding their roles in that market.
In the end, the goal is to untangle humankind from the grasps of corrupted governments, politicians, and banking cartels. This, in turn, will provide more power and money to the people. You will see more and more pushback from world governments as DeFi becomes more and more popular.
To keep your NFT curiosity going, please read these viral posts: