Previous Year Question
With reference to Non-Fungible Tokens (NFTs), consider the following statements:
They enable the digital representation of physical assets.
They are unique cryptographic tokens that exist on a blockchain.
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?
1 and 2 only
2 and 3 only
1 and 3 only
1, 2 and 3
Correct Answer: A
Detailed Solution
Statement 1 is correct.
An NFT can digitally represent ownership, authenticity or a specified right associated with a digital or physical asset. Artwork, music, videos, collectables, certificates and rights associated with physical assets may be represented through digital tokens.
However, purchasing an NFT does not necessarily transfer ownership of the underlying physical object or its copyright. The rights acquired by the buyer depend upon the applicable smart contract and contractual terms.
Statement 2 is correct.
An NFT is a unique cryptographic token whose ownership and transfer are recorded on a blockchain. Each NFT may possess a distinct token identifier and associated metadata.
The expression “non-fungible” means that one NFT is not necessarily identical to, or perfectly interchangeable with, another NFT. The represented asset, scarcity, attached rights and market value may differ between NFTs.
Statement 3 is incorrect.
Currency is fungible. For example, one ₹100 note is generally equivalent in value to another ₹100 note. Two NFTs, however, do not necessarily possess identical attributes or equal value.
NFTs can be purchased and sold in a market, but they are not exchanged at equivalency. Therefore, they cannot function like mutually interchangeable units of ordinary currency in commercial transactions.