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 medium of commercial transactions.
Which of the statements given above are correct?
Answer & explanation
Answer: (a) 1 and 2 only
Statements 1 and 2 are correct; statement 3 is wrong. An NFT is a one-of-a-kind token recorded on a blockchain, which can stand for a digital or a physical asset. Because each NFT is unique and not interchangeable, it cannot be traded 'at equivalency' and does not serve as money.
- ✓ 1. An NFT can record ownership of a physical item as well as a digital one, so it can act as a digital representation of a physical asset.
- ✓ 2. NFTs are unique crypto tokens that run on blockchain (distributed ledger) technology; the FATF describes them as digital assets that are unique rather than interchangeable.
- ✗ 3. 'Non-fungible' means not interchangeable: one NFT is not equal in value to another. The FATF notes such tokens are in practice used as collectibles rather than as payment or investment instruments, so they are not a medium of commercial exchange.
Remember · NFT = unique, non-interchangeable blockchain token (can represent physical or digital assets); unlike cryptocurrencies, it is not a medium of exchange.
Sources
- FATF, Updated Guidance: A Risk-Based Approach to Virtual Assets and VASPs (2021) ↗ · reference work “Digital assets that are unique, rather than interchangeable, and that are in practice used as collectibles rather than as payment or investment instruments, can be referred to as a non-fungible tokens (NFT) or crypto-collectibles.”
- Reserve Bank of India Bulletin: talk on cryptocurrencies ↗ “cryptocurrencies and other crypto products (like non-fungible tokens or NFTs) are being hailed as the innovations that would usher in decentralized finance or DeFi, which are blockchain applications geared to disrupt the traditional financial system.”
- Encyclopaedia Britannica: NFT use cases ↗ · reference work “Any physical work of art can be tokenized by creating an NFT associated with the artwork.”
Question and answer: UPSC's official GS Paper I (2022, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 1 Oct 2026 (how we verify). ·