With reference to Non-Fungible Tokens (NFTs), consider the following statements. 1. They enable the digital representation of physical assets. 2. They are unique cryptographic tokens that exist on a blockchain. 3. They can be traded or exchanged at equivalency and therefore can be used as a medium of commercial transactions. Which of the statements given above are correct?

QUESTION

Medium

Science & Technology

Prelims 2022

With reference to Non-Fungible Tokens (NFTs), consider the following statements.

They enable the digital representation of physical assets.
They are unique cryptographic tokens that exist on a blockchain.
They can be traded or exchanged at equivalency and therefore can be used as a medium of commercial transactions.

Which of the statements given above are correct?

Select an option to attempt

Explanation

Statement 1 is correct. NFTs can be associated with digital assets like artwork, music, or videos. They act as a certificate of ownership for these digital items.

Statement 2 is correct. NFTs are unique cryptographic tokens stored on a blockchain, a secure digital ledger. This ensures transparency and traceability of ownership.

Statement 3 is incorrect. NFTs are not fungible, meaning they are not interchangeable like currencies. Each NFT has unique properties and value, unlike a dollar bill where one can be replaced by another. While NFTs can be traded, their value depends on individual characteristics and market demand, making them unsuitable for everyday transactions like buying groceries.

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