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 ?
Show answer
Answer: A. Statement 1 is correct: NFTs can represent ownership of digital or physical assets. Statement 2 is correct: each NFT is a unique cryptographic token recorded on a blockchain. Statement 3 is wrong: being non-fungible, NFTs cannot be swapped one-for-one like money, so they do not work as a medium of exchange. So 1 and 2.
Watch for: NFTs are bought and sold, but that is trading unique items, not using them as interchangeable money.
Why the other options are wrong
- B. Wrong because NFTs are not exchangeable at equivalency.
- C. Wrong because NFTs are not interchangeable like currency.
- D. Wrong because statement 3 is incorrect.
Source to check: Union Budget 2022-23 and Finance Act, 2022 (definition of virtual digital assets, Section 2(47A) of the Income-tax Act); Ethereum Foundation explainer on NFTs
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.