Cryptocurrency Fintech Trennding World-Region-Country

What are Digital Tokens?

This November, The Fintech Times is looking to broaden the understanding of digital currencies, ranging from blockchain’s use outside of crypto to CBDCs, in an attempt to replace the notion that digital currencies are a synonym for crypto.

Today, we’re breaking the idea of what a digital token actually is and what functions they have within society.

What is a cryptocurrency? 

A cryptocurrency is, quite simply, a digital or virtual currency that is secured by cryptography, which provides a layer of security that makes it very difficult to counterfeit. Many cryptocurrencies are decentralised networked based on blockchain technology, most notably bitcoin where blockchain is used as a public ledger to record any transactions completed in the currency.

There are several hallmarks of crypto, both good and bad, the main one being how volatile they are. As market prices for cryptocurrencies are based on supply and demand, the exchange rate from crypto to Fiat currencies can fluctuate wildly. Though many people have reported getting rich off of their investments, many have also lost money due to how quickly the value can plummet. An example of this can be seen earlier this year, when Tesla announced they would be accepting payments in bitcoin, then almost immediately suspended the use of the currency. The former announcement caused the price of bitcoin to jump to 17% to $44,220, with the latter causing the then price to fall by 10%. This volatility is a huge concern, one that draws the attention of regulators and officials, though the sector remains widely unregulated.

Despite it being so volatile, there are many features of cryptocurrency that make them popular, one of which is the fact they are decentralised. This means that they are generally not issued by any central authority or government, meaning they can’t be manipulated by those parties. This lack of oversight however is what is prompting the creation of Central Bank Digital Currencies (CBDCs) which are intended to function as a government-backed crypto giving you all the benefits but less of the risk.

What is an NFT

One of the bigger fads at the moment within fintech is NFT’s, or Non-fungible tokens. You’ve probably heard about them in everyday lives, as not only are they gaining a lot of traction, but a lot of celebrities, public figures and other popular groups are getting behind them and producing their own offerings.

An NFT is a non-fungible token, which means that is one of a kind and completely unique, it can’t be replaced with something else. So, a £1 is fungible, as every £1 is exactly the same as the next. But a one-of-a-kind collectable trading card is non-fungible, as you can’t get it anywhere else. So, an NFT can be anything digital that’s collectable, and most of the time doesn’t exist anywhere else. So digital art, music, videos or even digital figurines (Terra Virtua currently has the rights for a Godzilla figurine). It’s kind of in the same vein as buying real-life artwork. Anyone can own a print of a Picasso, but only one person can own the original painting.

One of the main perks of NFT’s is that they are part of the blockchain so when an individual buys an NFT, there is a record of who bought it, when they bought it and most importantly – how much they bought it for, so in theory, NFT’s never lose their value. So, if you wanted to sell it on, there’s a clear record of how much you bought it for, and you can sell it on.

As mentioned, the whole world seems to be going NFT crazy at the moment, but some people are less enthused, noting “buyer beware” in a lot of cases. The NFT market is seemingly quite volatile, and people pay a lot of money for something that doesn’t exist in real life. If you’re into that, collect at your own risk.

There are also some concerns around the environmental impact of NFTs, with these tokens thought to be at least partially responsible for the carbon emissions generated by cryptocurrencies. The reason NFTs are involved with these extreme greenhouse gas emissions is that they are largely bought and sold on marketplaces that use the cryptocurrency Ethereum. Like most cryptocurrencies, Ethereum is built on the blockchain system called and utilise “proof of work” to add new blocks of transaction onto the blockchain (as we’ve already talked about). However, this process is incredibly energy inefficient, and is so on purpose as using a lot of energy makes it a lot less profitable for someone to try and tamper with the ledger.

These concerns surrounding NFTs have certainly left a sour taste in many people’s mouths, whether that’s the artists looking to sell crypto art or the buyers themselves. While it’s all the rage at the moment, many industry experts wonder about the longevity of the system, and whether NFT’s will still be around in a few years.

Author

  • Polly is a journalist, content creator and general opinion holder from North Wales. She has written for a number of publications, usually hovering around the topics of fintech, tech, lifestyle and body positivity.

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