The crypto market is huge and complex. The latest and highest growth and rise has been seen in the crypto market. The two most popular and prominent trends or applications in blockchain technology are NFT and DeFi. Both have distinct features and functionalities.
NFT vs DeFi
The main difference between NFT and DeFi is that NFT is referred to as 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 block chain on its platform and removes intermediaries.
NFT enables the tokenization of assets. The tokens are usually 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 value 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 smart contract programs.
Comparison Table Between NFT and DeFi
| Parameters of Comparison | NFT | DeFi |
| Definition | It is referred to a unit of data that is unique and non-interchangeable and is stored on the blockchain in the form of a digital ledger | It is a layered architecture that consists of highly composable building blocks and offers financial instruments |
| Long-form | Non-fungible token | Decentralised finance |
| Purpose | It is a physical as well as a digital asset and has various technological applications like in digital art, games, music films, and other Internet memes | 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 |
| 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 a unit of data that is unique and non-interchangeable. The data is stored on the blockchain in the form of 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 which is the proof of ownership.
NFT is often criticized for the carbon footprint and energy cost that is associated while validating the transactions in the blockchain. The unit on NFT can be sold as well as traded. It is often associated with physical as well as a digital assets. NFT trading is also regarded as extralegal nature which can be done on the informal exchange of ownership too.
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 set of data 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 any intermediaries like banks, brokerages, or exchanges. The instrument operates on smart contracts on the blockchain. The aim of DeFi is 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 by the Ethereum blockchain of smart contracts in 2017. The first prominent DeFi platform was MakerDAO. Two-third of the cryptocurrency market is considered to be made up by DeFi. The increased interest in the DeFi platform lead to the rise in the developers of Ethereum.
The platform 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 the smart contract programs.
The smart contracts of DeFi are known as DeFi protocols and have open-source software which is maintained by the developers. The access of the DApps is mainly through browser extension or application. 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 value while DeFi is a platform that can carry out several processes and transactions.
- NFT does not have any application or protocols while DeFi has its DeFi protocols or smart contracts and applications known as DApps.
Conclusion
The crypto market is diverse. Under the domain of blockchain technology, two popular applications are NFT and DeFi. Both the applications provide possibilities and opportunities in the crypto market. NFT provide a value proposition while DeFi provides a platform for financial services and transactions. The participation in both has risen sharply.
Both are different from each other in various parameters like foundation, purpose, processes, financial solutions, instruments, applications, governance, upgrades, and others. Both have their terms and conditions as well as limitations. Every investor and user is advised to read all the terms and conditions and understand the rules and regulations before investing money or moving forward.
References
- 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