(VENN) – Non-fungible tokens (NFTs) are the latest addition to the cryptocurrency craze. The subject may feel abstract to many parents, but their kids may be thinking about making a purchase. Here’s what parents should know before their kids make a financial gamble.
What is an NFT?
An NFT is a digital asset, whether a piece of art, a GIF or a tweet, that can be purchased using cryptocurrency. Once purchased, it cannot be transferred or sold, and proof of ownership is embedded in a digital ledger called blockchain.
When an NFT is purchased the buyer receives a copy of the asset, as well as the specific chunk of blockchain that proves ownership of the original image.
NFTs are primarily pieces of digital art, but can also take the form of viral videos, music, virtual avatars – even a tweet.
Why Do NFTs Matter?
In current culture, NFTs serve the same purpose as baseball cards or Pokemon cards. They are a digital collectible that allows fans to show their dedication and love for a particular creator or game, especially if the NFT is a limited-edition drop.
In the gaming community, purchasing an NFT is an extension of existing microtransactions, such as purchasing unique skins for Fortnite or League of Legends, or buying extra lives in Harry Potter Puzzles and Spells.
How Much Do NFTs Cost?
It depends on the product. Some sell for a few hundred to a few thousand dollars, while Tfue’s NFTs and 100 Thieves NFTs sold for three Ethereum each, the equivalent roughly $10,000 as of Monday. NFTs can be purchased using cryptocurrencies, such as Bitcoin or Ethereum, or credit cards depending on which site is used. When an NFT goes up for sale, it comes with an asking price, but prospective buyers can bid auction-style. If an NFT is an exclusive drop with limited copies available, bids are likely to be driven much higher.
Protecting Against Scams
There are currently three major websites operating sales of NFTs: Opensea, Mintable, and Rarible. While other options are available, such as Crypto.com or Nifty Gateway, using a little-known site comes with a certain amount of risk of monetary theft or failure to deliver goods.
If attempting to purchase a limited-edition NFT in support of a streamer, check the streamer’s profile to see if they are promoting its sale. If there is no mention of the NFT on their timeline, it is likely a scam to be avoided.
What Else Should You Know?
NFTs also bring significant environmental ramifications, as the New York Times and others have recently reported. One researcher on the topic says the average NFT transaction burns 340 kilowatt hours of electricity, equivalent to driving 676,000 miles. For reference, someone would need to drive from New York City to Los Angeles round trip approximately 121 times in order to accumulate that mileage.
NFTs are also created, or minted, based on anything that could be represented in the digital space. This makes it easy for anyone with an understanding of blockchain to create an NFT out of virtually anything, but it also opens the door for theft from the art community. A small creator could post their most recent art creation to their website, only to have an NFT miner take that image, turn it into an NFT, and sell it for a large profit with none going back to the original artist. It’s important to verify the seller of an NFT is the true owner of the work.
As with any digital purchase, it’s important to use critical thinking to make sure an NFT is worth the cost of purchase.