UPSC Prelims 2022 Question:

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?

Explanation:

• • Non-Fungible Tokens (NFT) enable digital representation of physical assets. An NFT is a digital asset that represents real-world objects like art, music, in-game items and videos. So, statement 1 is correct.
    
    
  • They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos. They are generally built using the same kind of programming as cryptocurrency, like Bitcoin. NFTs exist on a blockchain, which is a distributed public ledger that records transactions. So, statement 2 is correct. 
    
    

• Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value—one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain. NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). So, statement 3 is not correct. 
  
  

Therefore, option (1) is the correct answer. 

Subject: Economics|Money and Banking