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69

Question 69

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?

AOptions

A
A) 1 and 2 only
B
B) 2 and 3 only
C
C) 1 and 3 only
D
D) 1, 2 and 3

BSolution

Non-Fungible Tokens (NFTs) are unique digital assets that represent ownership of real-world items like art, music, in-game items, and videos. They are built on blockchain technology.

  • 1. They enable the digital representation of physical assets: This statement is correct. NFTs can be used to represent ownership of a unique physical item (e.g., a painting, a rare collectible, real estate) in a digital format. The NFT acts as a verifiable deed of ownership on the blockchain.
  • 2. They are unique cryptographic tokens that exist on a blockchain: This statement is correct. This is the core definition of an NFT. Each NFT has a unique identification code and metadata that distinguish it from other tokens, and its ownership is recorded on a blockchain (such as Ethereum).
  • 3. They can be traded or exchanged at equivalency and therefore can be used as a medium of commercial transactions: This statement is incorrect. This describes a 'fungible' token (like Bitcoin, Ethereum, or fiat currency), where each unit is interchangeable with another identical unit. NFTs are 'non-fungible', meaning each NFT is unique and cannot be replaced by another of its kind. While they can be traded (bought and sold), they are not exchanged 'at equivalency' like fungible currencies, nor are they typically used as a general medium of commercial transactions for everyday goods due to their non-interchangeable and often highly speculative nature.

Therefore, statements 1 and 2 are correct.

Diagram for Q69

CStrategy

For questions on emerging technologies like blockchain and NFTs, focus on understanding the core concepts and distinguishing features. Learn the definitions, primary use cases, and what makes them different from related concepts (e.g., fungible vs. non-fungible tokens). Be wary of broad or exaggerated claims.

DSyllabus Analysis

This question falls under Science and Technology, specifically 'Information Technology' and 'Emerging Technologies (Blockchain/Cryptocurrency)'.

EQuestion Analysis

Medium. Requires an understanding of a relatively new and evolving technology (NFTs).