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 ✓ UPSC's answer
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Why the answer is (a)
• A Non-Fungible Token is a unique cryptographic token recorded on a blockchain that certifies ownership of a specific digital or physical item — statement 2 is correct.
• Statement 1 is correct: NFTs can represent physical assets such as artworks, real estate or collectibles by tokenising their ownership records.
• Statement 3 is wrong: 'non-fungible' means each token is unique and not interchangeable one-for-one; unlike currency or bitcoin, NFTs cannot be exchanged at equivalency and so are not a medium of commercial transactions.
• NFT art sales, such as Beeple's 2021 auction, brought the concept into the news.
• Hence 1 and 2 only, option (a).
Why the other options are wrong
- (b) 2 and 3 only
- Statement 3 is wrong: NFTs are not interchangeable at equivalency.
- (c) 1 and 3 only
- Statement 3 is wrong; statement 2 is correct.
- (d) 1, 2 and 3
- Statement 3 is wrong, so all three cannot be correct.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2022, held on 5 June 2022. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.