It's difficult to stay up with an industry that releases new successful items every year. The blockchain sector is one of those that appears to be only scraping the surface of its full potential. Even so, as of the end of January 2021, it had surpassed 4000 different cryptos.
NFTs and Stablecoins are still extremely novel concepts to most individuals who aren't ardent users of the blockchain sector, despite the fact that they aren't very new in crypto terminology. Is there a connection between the two? What are the distinctions between the two if not?
What are NFT and Stablecoins?
Let us first define the two before we can differentiate it with one another
NFTs
Non-fungible tokens are referred to as NFTs. An NFT is a cryptographic asset with a unique identification code and metadata that is based on blockchain technology.
The identification code and information have enough individuality and uniqueness that they can be distinguished from any other NFT. It does not have a replica and cannot be traded for another NFT or any other NFT or other assets at parity.
NFTs are widely used in the art and real estate industries, where they serve as a digital depiction of artwork or real estate. In other words, their value will be determined by the worth of the individual artwork or piece of real estate.
Stablecoins
Stablecoins are a type of cryptocurrency that is backed by a reserve asset of some sort. The goal of supporting it is to provide some price stability in an otherwise turbulent cryptocurrency market.
The backing, known as a peg, is similar to how multiple currencies from different countries are tied to the US dollar. As a result, the value of its reserve asset determines its value, which is achieved by maintaining a fixed exchange rate with the reserve asset. The reserve asset is usually a fiat currency, but it can also provide price stability, such as gold.
NFTs versus Stablecoins : The Difference
Just by looking at their definitions, it's clear that they're not the same. However, they appear to share the trait of having their value determined by the underlying asset. What are the main distinctions between the two?
Different classes of assets
NFTs and Stablecoins are two completely different types of digital assets. A non-fungible token (NFT) is a blockchain-based cryptographic asset. As a result, it is not classified as cryptography.
Stablecoins, on the other hand, are a type of cryptocurrency, and as such, they are all altcoins.
Different ways of creation
Stablecoins can be made in two methods. They could be the outcome of a prior crypto blockchain's hard fork. The second method is to start from scratch as a completely new crypto project, replete with its own blockchain and consensus system. Crypto mining is required to produce more of a similar stablecoin.
NFTs, on the other hand, can begin as whole new initiatives, similar to Stablecoins, but without the blockchain or consensus system. By ‘breeding' two other NFTs, a new NFT can be created, which is distinct from its ‘parent' NFTs. Because of its expandable properties, the feature is possible.
Different states of fungibility
Stablecoins can be exchanged for other coins. This means that a single unit of a certain stablecoin is almost always a perfect clone of other stablecoins of the same type. As a result, they're perfectly and universally interchangeable one with the other. In other words, 1 Tether (a stablecoin) unit can be traded for another Tether unit.
Non-fungible tokens are, by definition, non-fungible. That means there are no two NFTs that are exact duplicates of each other in the entire universe. Because of their distinctiveness, there is no universal agreement for exchanging one unit of NFT for another.
Different uses
Because of the non-fungibility of NFTs, they cannot be utilized as a unit of exchange. It would be confusing if each customer buying goods in a store used a separate currency with a different exchange rate than everyone else. Estimating the value of the NFTs and achieving a balance would present a slew of problems. Because of their one-of-a-kindness, they make great digital representations of any one-of-a-kind asset, such as artwork or real estate.
The fungibility of stablecoins, as well as their lower price volatility, make them an effective medium of exchange and unit of trade. It adds the lower price volatility of fiat currency to the crypto world, making it easy to know the value of a cryptocurrency a few days or months afterwards. It's also a good value store because it's feasible to avoid significant value deterioration over a short period of time.
Different origins
The Ethereum blockchain's ERC 721 standard is the source of all NFTs. The standard specifies the required ownership information, minimum interface, security information, and metadata in gaming tokens. The ERC 1155 expands on this idea by combining numerous NFTs into a single contract. It also saves them money on transactions and storage.
Tether, which was first published in a white paper in 2012, was the first to put the concept of Stablecoins into practice. With five separate coins, each with a different peg, the coin uses a simple principle of administering a peg to fiat currencies.
Conclusion
NFTs and Stablecoins are similar in that their value is determined by an underlying asset, but they are not the same. From their beginnings to their way of manufacturing and use, there is a significant distinction.
Even though NFTs and Stablecoins are two separate types of digital assets, they all belong under the blockchain umbrella. They are both true testaments to blockchain's enormous potential, with developments always accompanied by a rise in functional specificity. The blockchain space has the potential to significantly alter the way the global financial system operates.
