UPSC Prelims 2022 · Question 69 of 98

UPSC Prelims 2022 question on Non Fungible Tokens

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?

  1. 1 and 2 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. 1, 2 and 3
Show answer

Answer: A. 1 and 2 only

Verdict

Correct statements: 1 and 2 → Option (a) 1 and 2 only.

Statement by statement

Statement 1 – CORRECT: NFTs enable the digital representation of physical assets. Anything that can be converted into a digital form can be an NFT — including drawings, photos, videos, GIF, music, in-game items, selfies, and even tweets. Hence statement 1 is correct.

Statement 2 – CORRECT: Non-fungible tokens are unique cryptographic tokens that exist on a blockchain and cannot be replicated — having a unique identification code and metadata. Hence statement 2 is correct.

Statement 3 – INCORRECT: Unlike cryptocurrencies, NFTs are non-fungible, meaning the value of one NFT is not equal to another. Therefore they cannot be traded or exchanged at equivalency and cannot be used as a medium of commercial transactions. Hence statement 3 is not correct.

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