The crypto market is huge and complex. The crypto market has seen the latest and highest growth and riset.
The two most popular and prominent trends or applications in blockchain technology are NFT and DeFi. Both have distinct features and functionalities.
Key Takeaways
- NFTs (Non-Fungible Tokens) represent unique digital assets, while DeFi (Decentralized Finance) relates to financial services built on blockchain technology.
- NFTs primarily deal with digital art, collectibles, and virtual goods, whereas DeFi focuses on lending, borrowing, and trading financial instruments.
- NFTs derive value from scarcity and uniqueness, while DeFi projects create value through decentralized financial services and products.
NFT vs DeFi
The difference between NFT and DeFi is that NFT is called unique digital assets, while DeFi is referred to as the financial system on the internet. NFT contains a unit of data that is unique and non-interchangeable, while DeFi operates on smart contracts on blockchain on its platform and removes intermediaries.
NFT enables the tokenization of assets. The tokens are realistic value propositions.
The value of the particular asset is locked. The value of NFT can differ at the individual level and market level. The deal is determined majorly by the value of the offering.
On the other hand, DeFi enables financial services and transactions. The platform operates on decentralized applications.
The transactions can be directly made between participants through the innovative contract programs.
Comparison Table
| Parameters of Comparison | NFT | DeFi |
|---|---|---|
| Definition | It is a layered architecture that consists of highly composable building blocks and offers financial instruments. | It is a physical as well as a digital asset and has various technological applications in digital art, games, music films, and other Internet memes |
| Long-form | Non-fungible token | Decentralised finance |
| Purpose | To remove intermediaries and to allow people to borrow and lend funds from others, trade cryptocurrencies, speculate on the movement of prices, earn interest, insure against risks and others. | Source System |
| Control and visibility | Moderate | High |
| Source system | Private | Open |
What is NFT?
NFT is the short form of Non-fungible token. It is referred to as a unit of data that is unique and non-interchangeable. The data is stored on the blockchain as a digital ledger.
The association of NFT is with reproducible data files. The data files can be audio, photos, or even videos.
The underlying digital files are not restricted from copying or sharing and are provided with a public certificate of authenticity, proof of ownership.
NFT is criticized for the carbon footprint and energy cost associated while validating the transactions in the blockchain. The unit on NFT can be sold as well as traded.
It is associated with physical as well as a digital asset. NFT trading is also regarded as extralegalin ,, which can be done on the informal exchange of ownership.
NFT cannot be mutually interchangeable, and so it is known as fungible. The functions of NFT are mostly in cryptographic tokens.
The creation of nifty is when a blockchain string record in a cryptographic hash identifies a data set and creates a chain of identifiable data blocks. The authentication of the cryptographic transaction process is done by giving a digital signature.
The signature can track the NFT ownership.
NFT ownership does not guarantee intellectual property rights or copyright. The sale of NFT represents the work of the owner, and the buyer does not necessarily receive the privileges of the copyright.
The ownership and the unique identity of an NFT can be verified through the blockchain ledger. NFT has various technological applications in digital art, games, music, films, and other Internet memes.
What is DeFi?
DeFi is the short form of decentralized finance. It is a layered architecture that consists of highly composable building blocks and offers financial instruments.
It does not rely on intermediaries like banks, brokerages, or exchanges. The instrument operates on smart contracts on the blockchain.
DeFi aims to allow people to borrow and lend funds from others, trade cryptocurrencies, speculate on the movement of prices, earn interest, insure against risks, and others.
According to the latest survey of October 2021, decentralized finance had the value of assets to $100 billion. The basis of DeFi was the Ethereum blockchain of smart contracts in 2017.
The first prominent DeFi platform was MakerDAO. Two-thirds of the cryptocurrency market is considered to be made up of DeFi.
The increased interest in the DeFi platform led to the rise in the developers of Ethereum. The forum operates on decentralized applications.
Such applications are known as DApps.
Such applications perform various financial functions on blockchains or distributed ledgers. The transactions can be directly made between participants through innovative contract programs.
The smart contracts of DeFi are known as DeFi protocols and have open-source software which the developers maintain. Access the DApps is mainly through a browser extensions or applications.
It can also be linked to other complex financial services.
Main Differences Between NFT and DeFi
- NFT is referred to unique digital assets, while DeFi is referred to the financial system on the internet.
- NFT stands for Non-fungible token, while DeFi stands for decentralized finance.
- NFT help in the tokenization of assets, while DeFi provides access to services in a decentralized platform.
- NFT can store specific unique values, while DeFi is a platform that can carry out several processes and transactions.
- NFT has no application or protocols, while DeFi has its DeFi protocols or smart contracts and applications known as DApps.
- https://books.google.com/books?hl=en&lr=lang_en&id=Yww6EAAAQBAJ&oi=fnd&pg=PA4&dq=nft+and+defi&ots=GNv5NgG9xn&sig=N7WHZJIjo92a3Bn1eBfEh1eDdqA
- https://books.google.com/books?hl=en&lr=lang_en&id=hAZGEAAAQBAJ&oi=fnd&pg=PA4&dq=nft+and+defi&ots=bL-qtS99Wb&sig=oGSFoII7NmgjmfRWjNBdv2AmBoI
Last Updated : 13 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
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