With reference to Non-Fungible Token (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?

[UPSC Civil Services Exam – 2022 Prelims]

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (a)        

Explanation:

• Non-fungible tokens (NFTs) are cryptographic assets on a blockchain that uniquely identify real-world items such as artwork and real estate.
• By “tokenizing” these assets, it becomes more efficient to buy, sell, and trade them, reducing the likelihood of fraud.
• NFTs typically contain references to digital files such as photos, videos, and audio.
• “Tokenizing” these real-world tangible assets makes buying, selling, and trading them more efficient while reducing the probability of fraud. Hence, Statement 1 is correct.
• It is cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. Hence, Statement 2 is correct.
• Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. Hence, Statement 3 is not correct.