UPSC Prelims 2022 Q69: Science & Technology – Computer & Information Technology
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?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer: (a) 1 and 2 only
Explanation
Non-Fungible Tokens (NFTs)
| Statement | Verdict | Reason |
|---|---|---|
| 1. They enable digital representation of physical assets | Correct | NFTs can stand for art, real estate titles or collectibles |
| 2. They are unique cryptographic tokens on a blockchain | Correct | Each NFT has a unique ID recorded on a blockchain such as Ethereum |
| 3. They can be traded at equivalency and used as a medium of exchange | Incorrect | Non-fungible means not interchangeable; one NFT is not equal to another, so it cannot work as money |
Fungible vs non-fungible:
| Feature | Fungible (rupee, Bitcoin) | Non-fungible (NFT) |
|---|---|---|
| Interchangeable | Yes, one unit = another | No, each is unique |
| Divisible | Yes | Usually not |
| Use as currency | Possible | Not possible |
Answer: (a) 1 and 2 only.
Why each option is right or wrong
- (a) CORRECT. NFTs are unique blockchain tokens that can represent physical or digital assets.
- (b) Incorrect. Statement 3 is false; non-fungible tokens cannot be exchanged at equivalency.
- (c) Incorrect. It drops the true statement 2 and keeps the false medium of exchange claim.
- (d) Incorrect. Being unique is exactly why NFTs cannot serve as a medium of exchange.
Key point
NFT = unique, non-interchangeable blockchain token representing an asset; it cannot be traded at equivalency or used as money.
Remember
NFT = unique token; not interchangeable, so not money.
Common mistakes
- Treating NFTs like cryptocurrencies, which are fungible.
- Missing that the word 'non-fungible' itself rules out statement 3.
- Thinking NFTs can only represent digital art; they can represent physical assets too.
Exam tip
Decode the term: fungible = interchangeable. 'Non-fungible' answers half the question.
Sources
- Ministry of Electronics and IT — Blockchain National Strategy (2021)
- RBI — Report on Currency and Finance (crypto assets discussion)