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What are NFTs?
NFT stands for Non-Fungible Token. Non-fungible means not replaceable by something identical. Non-fungible tokens, then, are digital files that users cannot replicate.
NFTs are most often associated with digital artwork as in the case of the Bored Ape Yacht Club. However, an NFT can take the shape of anything beyond digital art too, including music, photography, avatars and even video game assets.
NFTs in social media are popular for buying and selling. Users might come across videos and posts advertising new NFTs to purchase, or they might communicate on platforms like Reddit.
What is cryptocurrency?
Cryptocurrency, or crypto, is a type of currency that only exists online. Blockchain technology keeps track and stores records of cryptocurrency (and NFTs). It is kept decentralised, which means there isn’t one authority or financial institution that controls crypto.
The idea of cryptocurrency works similar to the stock market. Different broker apps exist to help users invest in cryptocurrency of any kind. To start, users generally have to purchase cryptocurrency with real-world money using credit cards or other forms of payment.
Alternatively, users can mine for crypto. However, this also requires investment in the right mining hardware and software, as well as increased use of electricity. Regardless of how someone gets started, it isn’t generally cheap.
What are the popular cryptocurrencies?
Cryptocurrency first became really popular with Bitcoin in 2009. Since then, many other forms of cryptocurrency have been created. Below are some of the most popular.
- Bitcoin (BTC): 1 Bitcoin is worth thousands of pounds. This is the most widely used form of crypto.
- Ethereum (ETH)): 1 Ethereum is worth a little over £1000. Users believe that Ethereum will eventually overtake Bitcoin.
- Tether (USDT): 1 Tether is worth roughly £1. Its affordability makes it more accessible than other cryptocurrencies.
These are just 3, but there are thousands of other cryptocurrencies that young people might invest in online.
What is alternative cryptocurrency?
Altcoins, or ‘alternative coins’, are types of cryptocurrency apart from the more popular types. Generally, this refers to coins other than Bitcoin and, for some, Ethereum. Altcoins may be used in different ways than standard crypto coins. Some of these purposes may include:
- utility: to provide a certain service such as redeeming rewards. Unlike Bitcoin or other crypto, utility tokens are not as popular for exchanging or holding onto.
- memes: inspired by an online joke or parody of other coins. A popular example is Dogecoin, inspired by the Doge meme.
- governance: gives holders rights to vote on changes within the blockchain.
Other uses, including payment like Bitcoin and Ethereum, also exist. However, it can sometimes be difficult to determine its use. Users also run a greater risk of scams or loss of interest.
Popular platforms like Discord, Reddit and Telegram see weekly launches of altcoins, which might encourage young people to invest early.
How do NFTs and cryptocurrency work together?
Both NFTs and cryptocurrency would be a part of the proposed Web3 and are a big part of the metaverse. Unlike cryptocurrency, users cannot exchange one NFT for another. However, users engaging with either might also use the other.
To purchase non-fungible tokens, a user must have a crypto wallet generally used for cryptocurrency. This is also where platforms store NFT keys as proof of ownership of an NFT collection. Just like an offline wallet, users keep their crypto wallets safe and private. While many NFTs are for sale with cryptocurrency only, there are often options for those who wish to purchase with local currency and credit cards.
Users might advertise the investment or sale of crypto and NFTs in social media settings. This method of marketing means these posts could come across anyone’s social feed, including children and teens.
So, it’s important to talk to your child about their online money management to help them make good financial choices.
What are the risks of NFTs and cryptocurrency?
Like trading stocks or making financial investments, working with NFTs and cryptocurrency has certain risks.
Influencer promotion
Influencers might tell their followers which non-fungible tokens, altcoins or other cryptocurrency to buy because of sponsorships. This can lead to young people misunderstanding the source of the influencer’s wealth, which may lead to loss of their own money. In fact, some influencers are paid thousands to endorse projects in cryptocurrency.
Low financial benefit
Some young people may get into this form of investing with the idea of making large sums of money. Unfortunately, that’s not the case for many.
While young people might see content from influencers selling NFTs on social media or promoting crypto highlighting the potential to grow investments, they might not understand the reasons behind this. For instance, the influencer may be selling a course by which they make most of their money. Or they might have a sponsorship with a platform to promote them. In that sense, they aren’t making a lot of money from NFTs or cryptocurrency.
Misunderstanding of non-fungible tokens and crypto
In Ofcom’s 2022 Children’s Media Lives report, teens reported seeing content on social media promoting NFTs or cryptocurrency. Because they might watch the whole video, the algorithm suggests to them related content. As such, they see more people talking about it but potentially not explaining it. This might lead to children seeking out the answers themselves or investing in one or the other with only a basic understanding of the NFT marketplace.
Losing money
Investment in NFTs and, especially, cryptocurrency is high-risk. Just like the stock market, the buy and sell rates fluctuate regularly. This means that a teen might invest a large sum of money into crypto and end up losing all or most of it.
Similarly, someone can buy an NFT with the intention to sell, but prices and value change quickly. They might end up with something relatively worthless on their hands.
In the case of altcoins, which start off based on community interest, a user might invest in something that never gets off the ground. This could be due to scams or loss of investors.
It’s unregulated
Both non-fungible tokens and cryptocurrency are legal in the UK. However, they are not regulated by the same laws that affect a physical object like a piece of art or finances. Unfortunately, this means stolen assets or scams are more likely and not necessarily punishable.
Additionally, users risk investing in NFTs that are fake or copied from original digital artists. They are unlikely to get their money back if this happens. The popularity of NFTs in social media settings means that young people often see this content without a clear understanding of the potential risks involved. As such, they might buy into something they’re unfamiliar with.
