For brand new NFT or crypto investors who don’t know the difference between Ethereum and NFT. This article will cover all differences and similarities.
The invention of cryptocurrencies started more than a decade ago when the infamous Bitcoin founder Satoshi Nakamoto released a Bitcoin whitepaper. Also, with the introduction of blockchain technology and peer-to-peer money(cryptocurrencies) the world witnessed another invention. Moreover, this invention would have the main impact on the way we experience money and digital ownership.
Fast forward today, the crypto space has exploded in new alternatives to fiat money called cryptocurrencies. Besides, all of them are using blockchain technology and are completely decentralized. In addition, besides the rise of cryptos, we also witnessed a new trend called NFTs. NFTs are also using blockchain technology and that is one of the reasons why people confuse them with cryptos.
For the purpose of this article, I will explain the difference between Ethereum and NFTs. Also, why most NFTs are on Ethereum and what NFTs are.
Whate are NFTs
The latest innovation in the blockchain space is the representation and trading of artworks and collectibles through NFTs, non-fungible tokens. NFTs are using a blockchain network similar to cryptocurrencies where every transaction is recorded on-chain. Additionally, storing the NFTs in a decentralized way makes the use of NFTs secure.
In fact, NFTs are pretty much similar to cryptocurrencies, except each one is unique and represents ownership of a digital object. These may include a collectible, soundtrack, artwork, or even an in-game item. These tokens are called ‘non-fungible’ because no one can replicate them. After all, as stated earlier, each one is unique, making them irreplaceable.
Furthermore, NFTs aren’t available or purchasable in centralized crypto exchanges. Instead, you’ll have to find an online marketplace built explicitly for NFTs. These marketplaces are platforms where one can display, store, or trade NFTs.
Ethereum vs NFT: What is the Difference?
In short, the main difference between Ethereum and NFT is that ETH is all about digital money and NFTs are all about digital ownership. Specifically, both are tokenized assets using a blockchain network that stores all related transactions.
Ethereum or ETH stands for cryptocurrency that can be used to do all kinds of payments on the blockchain network. Meaning, every ETH crypto can be exchanged for another ETH and are called fungible tokens.
Fungible tokens or assets can be exchanged among each other because of their value or price. Meaning they are fungible and easy to use. For example, ETH, BTC, or dollars are fungible assets because 1 ETH / 1 BTC /$1 USD is exchangeable for another 1 ETH / 1 BTC /$1 USD.
On the other hand, there are Non-fungible tokens or assets. A non-fungible token is a term used in economics to describe assets or things that are not exchangeable for other items. This is because they have metadata or unique properties and attributes.
Non-fungible tokens like a #BAYC item are a scarce asset out of a collection of 10000 items. In other words, every NFT item is unique which makes it irreplaceable.
All in all, even though ETH cryptocurrency or an NFT token are both using the same blockchain network, there is a big difference.
Ethereum vs NFT: Use Cases
Another interesting factor that explains the difference between Ethereum and NFTs is utilities. For instance, NFTs are digital tokens that we can use to represent ownership of tangible and intangible items, such as a real-world object or a digital world object.
ETH, on the other hand, doesn’t cover any ‘live‘ objects and its only utility is a digital store of value or money. Moreover, the only similar characteristics are that they use wallets for storage as well.
NFTs allow us to symbolize things like art, photography, images, video, music, collectibles, and even real estate. Non-fungible tokens can only have one official owner at a time, and non-fungible tokens also use a blockchain network for security reasons. No one can edit, modify or change the ownership record of an existing NFT.
Indeed, an NFT or non-fungible token can be created or ‘minted‘ from digital objects that represent collectible items, including:
- Digitable collectibles
- Digital cards
Ethereum vs NFT: Similarities
In like manner, NFTs and Ethereum tokens(ETH) are both programmable assets. In fact, both are using smart contracts to handle transactions on the blockchain. This is one of the main reasons why outsiders think both assets are the same.
As mentioned earlier there is a big difference in ownership when dealing with NFTs. On the contrary, what are the characteristics that both digital assets have? Here is a summary:
- Gas fees(Both assets cost you fees when sending or trading)
- Crypto wallets(You can store ETH and NFT tokens in crypto wallets)
- Voting(Both ETH and NFTs can be used in DAO’s(*) for voting on proposals)
(*) DAO: A decentralized autonomous organization (DAO) is an entity with no central leadership. Decisions get made from the bottom-up, governed by a community organized around a specific set of rules enforced on a blockchain.
Are All NFTs on Ethereum?
No, not all NFTs in existence are on the Ethereum blockchain. However, Ethereum is where it all started and NFTs reached mainstream attention. Nowadays, the most expensive and valuable NFTs are on marketplaces that use the Ethereum blockchain. Other popular blockchain networks that support NFTs are Solana, Avalanche, and Polygon.
Although Ethereum and NFTs are both using the same blockchain to do transactions, it is not an obligation to use Ethereum when trading NFTs. One of the biggest complaints of many NFT traders is the high gas fees for swapping or transferring NFTs. Maybe you have experienced it already, but buying or selling NFTs can be a costly experience. In fact, compared with the Polygon blockchain the fees you have to pay are mostly 10 times less than Ethereum.
One of the main reasons why Polygon has faster and cheaper transactions is the fact that they are not using hardware miners. Given that, Ethereum uses electricity miners to validate and process transactions.
Instead, Polygon uses a different consensus mechanism called ‘Proof-of-Stake‘ where users can lock coins in wallets. In addition, this process is called crypto staking where locked nodes validate transactions and are rewarded for ‘mining‘ fees. Besides, the rewards are paid in cryptocurrency(MATIC) and are a way to earn passive income by holding crypto.
Polygon vs Ethereum: Transactions & Costs
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All in all, it’s up to you to decide if you are willing to pay higher fees for NFTs when using Ethereum. Most of the time the rewards when trading ETH NFTs are much higher and worth the risk. Besides, it’s good to know that the most popular NFT trading platform Opensea recently allowed to use Polygon NFTs as well.
Do all NFT Marketplaces run on Ethereum?
No, not all NFT marketplaces run on Ethereum anymore. A few years ago when NFTs were a new technology and rising asset class, Ethereum was the only option. Nowadays NFTs, in general, have gained a lot of popularity and new cryptocurrency networks are adopting NFTs as well.
Given that, most NFTs are being used for trading. NFT marketplaces also run on different blockchain networks. Below are some very popular NFT marketplaces and the networks they cover:
- Opensea(Ethereum, Polygon, Klaytyn)
- Nifty Gateway(Ethereum)
- Binance NFT marketplace(Binance Smart Chain)
- Rarible(Ethereum, Tezos and Flow)
- Wax Marketplace(Wax)
Besides different NFT marketplaces, there are also different wallets involved when using NFTs. Additionally, when using ETH NFTs, the most popular wallet to use is Metamask. Although Metamask crypto wallet also can be used on other blockchains it won’t cover them all. Therefore, other wallets you can use are Phantom(Solana), Avalanche Wallet(Avalanche), or Wax Clout(Wax).
NFTs are digital tokens that are using smart contracts which gives them extra functionalities. Particularly, non-fungible tokens (or NFTs) are ERC-721 tokens created by an indivisible smart contract on the Ethereum blockchain. NFTs are known for their uniqueness and can't be divided or split up. Because of this, they are the perfect medium for intellectual property tracing.
In fact, NFTs are programmable digital assets and because of this, it’s even possible that one single NFT has several owners. Several owners for one NFT are called fractional NFT.
A fractional NFT means that the digital assets it represents can be divided into smaller parts or fractions. Moreover, a fractional NFT allows different numbers of people to take ownership of the same NFT. Additionally, a smart contract is programmed to generate several tokens that are linked to the indivisible original. If you hold a fractional NFT you are entitled to a percentage of ownership of the NFT. Just like any regular NFT, you can trade it at exchanges or secondary markets.
In essence, Ethereum and NFTs are digital assets where NFTs have additional functionalities including fractional ownership.
Finally, the popularity of NFTs is on the rise altogether with the rising costs of gas fees on Ethereum. Are they losing market share on NFTs? At the moment Ethereum is the mainstream platform where many famous artists, sporters, influencers, and wealthy crypto people use it.
Of course, many less rich people including sports fans, artists, or investors are looking for alternatives when trading NFTs. As a result, the Solana blockchain has captured a lot of trading volume at the expense of Ethereum.
In my opinion, this trend will continue in the years to come which is similar to the Bitcoin Dominance Chart for cryptos. Meaning, despite the rising price and popularity of Bitcoin the chart will show an overall downward trend.
In this article, which covers the difference between Ethereum vs NFTs the usability of NFTs should be more clear now. Additionally, Ethereum is still the most popular blockchain network for usage, trading, and minting NFTs.
Remember that cryptos, blockchain technology, and NFTs are new and still in their infancy. Therefore, it’s very smart to keep up to date with the latest developments. Whether on social media by using platforms like Twitter, Discord, or other crypto-related platforms.
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