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Non-Fungible Tokens (NFTs) UPSC pre 2022

It Was a medium-level question because though NFTs were in the news but question require the application of basics.


Concerning 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 is correct?

(a)        1 and 2 only

(b)        2 and 3 only

(c)        1 and 3 only        '

(d)        1, 2 and 3

 

Solution- For a Better understanding see the video.

 

Trick

Statement 3 is wrong Because Non-fungible items cannot be used as a medium of exchange because they will not be divisible easily.

 

 

What is a Non-Fungible Token[NFTs]?

 

NFTs are unique cryptographic tokens that exist on a blockchain and cannot be replicated.

 

For Example

A GIF, Digital Image, Music File etc stored Using Digital Technology.

 

NFTs can represent real-world items like artwork and real estate.

 

"Tokenizing" these real-world tangible assets makes buying, selling, and trading them more efficient while reducing the probability of fraud.

 

Source - https://www.investopedia.com/non-fungible-tokens-nft-5115211

 

What Fungible Means?

 

To understand whether a thing is fungible or not we need to answer 2 questions

 

1. Can it be subdivided into smaller units?

2. Is Mutual substitution possible in terms of value?

 

For Example

$500 can be divided into smaller units of $100 and

5 notes of $100 can buy the same quantity of Goods as a single $500 note.

 

So, We can Say that $500 is Fungible in nature.

 

But a Digital Image does not have the same value When it is Divided into Parts.

 




 


Extra For Mains

 

Mock - Critically Analyse NFTs?

+ = Pros/benefits / Positives

-= Cons/Negatives / Drawback

 

+

-

Easier to trade

Digital Asset.

So, It's helpful for

Multimedia Creators

Money Laundering

& Terror Finance

Easier to Verify

Ownership.

 

So, Prevent Plagiarism.

 

Investment Bubble

will collapse

and Investor

will lose money.

 

For Example

 In November 2022,

cryptocurrency exchange 

FTX collapsed 

over a

period of 10 days.

 

E Admin.

Cyber security issue

 

Environment Issue - Energy Intensive Co2 ↑


 

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