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Q39 (IAS/2022) Science & Technology › ICT, AI, Cybersecurity & Emerging Tech › Blockchain and Web3 Official Key

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 a equivalency and therefore can be used as a medium of commercial transactions. Which of the statements given above are correct ?

Result
Your answer: —  ·  Correct: A
Explanation

The correct answer is Option 1 (1 and 2 only). This is based on the fundamental characteristics of Non-Fungible Tokens (NFTs) and their distinction from fungible cryptocurrencies.

  • Statement 1 is correct: NFTs act as digital certificates of authenticity. They enable the digital representation of physical assets (like artwork or real estate) or digital-native assets, allowing them to be bought, sold, and tracked securely via blockchain.
  • Statement 2 is correct: By definition, NFTs are unique cryptographic tokens. Unlike Bitcoin, each NFT has distinct identification codes and metadata that prevent them from being identical to one another.
  • Statement 3 is incorrect: The term "non-fungible" means they cannot be exchanged at equivalency. While they are traded, one NFT does not equal another in value (unlike two 100-rupee notes). Therefore, they lack the "fungibility" required to serve as a standard medium of commercial transactions or a unit of account.
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Q. With reference to Non-Fungible Tokens (NFTs), consider the following statements : 1. They enable the digital representation of physical a…
At a glance
Origin: Books + Current Affairs Fairness: Low / Borderline fairness Books / CA: 2.5/10 · 7.5/10
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This question masquerades as high-tech but is actually a vocabulary test on the word 'Fungible'. While books cover Blockchain basics, the specific application (NFT) was a dominant Current Affairs theme. The key to solving was spotting the contradiction in Statement 3.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Can Non-Fungible Tokens (NFTs) represent physical assets in digital form?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 7: Indian Economy after 2014 > Fourth Industrial Revolution (Industry 4.0): Present > p. 232
Presence: 5/5
“With rapid development in the fields of information technology and hardware, the world is about to witness a fourth industrial revolution i.e., Industry 4.0, which is rooted in a new technological phenomenon - digitalization. This digitalization enables us to build a new virtual world from which we can steer the physical world. While Industry 3.0 focussed on the automation of single machines and processes, Industry 4.0 concentrates on the end-to-end digitisation of all physical assets and their integration into digital ecosystems with value chain partners. Driven by the power of big data, high computing capacity, artificial intelligence and analytics, Industry 4.0 aims to completely digitise the manufacturing sector.”
Why this source?
  • Industry 4.0 explicitly aims for end-to-end digitisation of all physical assets and their integration into digital ecosystems.
  • Digitisation is described as enabling a virtual world that can 'steer' the physical world, which supports the idea of digital representations of physical items.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 5: Land Reforms > 5.6 Digitization of land records > p. 200
Presence: 5/5
“For example, earlier if a farmer wants loan, then he needs to provide his land records in the physical form and then banks need to authenticate this land paper (where there were chances of fraud) and required a lot of documents to be signed and then provide the loan. But now all this will happen online very fast with digitized land records.”
Why this source?
  • Digitization of land records is given as a concrete example where a physical asset (land) is represented and authenticated online.
  • The example shows digitised records replacing physical papers for transactions like loans, illustrating practical digital representation of physical assets.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > b. Depository Receipt > p. 478
Presence: 4/5
“A depository receipt is a negotiable a financial instrument issued by a bank which represents a foreign company's publicly traded securities. American Depository Receipts (ADR) - In the case of ADR, it is issued by the US bank that represents securities of a foreign company trading in the US stock market. ADR is denominated in US$, and through this the US investors can invest in non-US companies. ADRs can be transferred without any stamp duty. Global Depository Receipts (GDRs) - These are equity instruments issued in international markets. They serve the same function like ADRs, but on a global scale and the receipt is issued by the depository bank.”
Why this source?
  • Depository receipts are described as negotiable instruments that represent underlying securities, demonstrating the concept of one instrument standing for an asset.
  • This financial representation principle is analogous to tokens that represent ownership of underlying assets.
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