Question 65 from UPSC CSE 2022 - Current Affairs

Question

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?

IASCODEX · Accepted Answer

Correct Option: A. 1 and 2 only

Strategy: Focus on the distinction between 'fungible' and 'non-fungible' to understand that NFTs cannot be interchanged at equivalency, thus ruling out statement 3. Identify the blockchain association and digital representation aspects of NFTs: statement 2 is definitively true as NFTs are unique tokens on a blockchain, and statement 1 follows from their real-world use as digital representations of assets. The only combination that fits these findings is option A (1 and 2 only).

Key Info: ## Non-Fungible Tokens (NFTs)

NFTs are unique digital assets verified using blockchain technology. Unlike fungible cryptocurrencies (e.g., Bitcoin or Ether), NFTs are non-fungible, meaning each has a distinct identity and cannot be exchanged for another at an equivalent value.

### Key Characteristics and Uses

*   **Representation:** NFTs represent ownership or proof of authenticity for unique items such as digital art, collectibles, music, videos, virtual real estate, or tokenized physical assets.
*   **Creation:** They are 'minted' on smart contract platforms, typically using blockchains like Ethereum, Solana, or Polygon.
*   **Blockchain Record:** Each NFT includes metadata and a unique identification code recorded on the blockchain, ensuring provenance and preventing duplication.
*   **Value & Interchangeability:** NFT values are individually determined, with no intrinsic equivalence. They cannot be used as a medium of commercial interchange at parity due to their uniqueness.
*   **Standards:** Major NFT standards include Ethereum's ERC-721 and ERC-1155.
*   **Utility:** NFT utility has expanded into areas like gaming (unique in-game assets), intellectual property, and digital certification.

IASCODEX · Answer

Option B: 2 and 3 only

IASCODEX · Answer

Option C: 1 and 3 only

IASCODEX · Answer

Option D: 1, 2, and 3