To help keep young people safe as they navigate the popular world of cryptocurrencies and NFTs, decentralised finance expert Ademolawa Ibrahim Ajibade offers parents comprehensive insights and advice.
Cryptocurrency is a peer-to-peer version of electronic cash. It allows one party to send online payments directly to another globally without the need for any financial institution. Unlike bank deposits, kept in heavily guarded vaults, cryptocurrencies only exist digitally. They take the form of cryptographic codes, which are stored on a blockchain.
A 2021 study showed that more than 94% of people who own crypto were between the ages of 18 and 40.
There are two broad ways for beginners to get their hands on crypto. Firstly, they can earn units of cryptocurrency through a process called mining. This involves using computing power and specialised devices to generate coins.
Secondly, users can buy the currencies from existing holders. This is called a crypto exchange. They can pay other holders in cash or other forms of crypto.
If you own cryptocurrency, you don’t really own any physical item. What you own is a cryptographic key. As such, you can transfer a unit of value from one person to another without any mediating third party.
Although Bitcoin started in mid-2009, several cryptocurrencies and alternative applications emerged since then and still. Today, we have new iterations of cryptocurrencies such as non-fungible tokens and security tokens. And more are expected to emerge in the future.
Broadly speaking, there are 3 routes to trading cryptocurrencies for profit: HODLing, spot trading and yield farming.
This is fondly called HODLing (sometimes ‘holding on for dear life’) among crypto enthusiasts. The method involves purchasing and holding possession of specific cryptocurrencies in the hope they increase in value at a future date. HODLing works like other investments.
Instead of investing and hoping an asset will increase in value, spot trading is all about the short term. Spot trading is the process of buying and selling a variety of cryptocurrencies quickly. Because the worth of coins rise and fall quickly, someone might trade daily.
If you go ‘long’, that means you have bought the crypto in hopes it will increase in that short time. If the crypto asset does increase in value, you’ll make a profit. But if the prices fall drastically, you could make huge losses within a very short period.
This is when someone deposits cryptocurrencies into ‘liquidity pools’. Essentially, users pool their crypto together in exchange for interest payments or to share blockchain network fees.
Yield farming is similar to fixed interest deposits or bonds in traditional banking. It generally involves committing certain resources in exchange for a fraction of the returns.
More platforms that teach children how to use cryptocurrency or NFTs are being created. See some of the more popular platforms.
NFTs are digital assets that represent valuable collectibles such as art works, music and games or membership tokens. They possess a unique identity encryption that is created and validated by the same blockchain technology used with cryptocurrency.
They are different from crypto. While cryptocurrencies are like cash and can have multiple versions for the same note, NFTs are non-fungible. This means each version is unique to its owner.
For instance, there are multiple £50 notes in circulation but there is only one Mona Lisa. Through blockchain technology, a valuable asset like the Mona Lisa painting can be tokenised (turned into an NFT) and sold on an NFT exchange.
Because of their rarity and value, it is not uncommon for NFTs to command millions in a resale price within a short period. NFT holders can resell their digital assets by transferring ownership to another user’s digital wallet address. To do this, users typically sign-up on popular NFT trading platforms and marketplaces like Opensea to list their items for sale.
Aside from owning the assets, NFT ownership can also give its holders exclusive access to certain perks. A typical example of this is the Socios Token collection. This platform gives fans of sports/teams such as Arsenal Football Club and UFC exclusive rights to perks and surveys, earning rewards points the more they interact.
Unlike the traditional finance world, which is often seen as formal, the blockchain world is new and exciting. The exclusivity, entertaining trends, celebrity participation, sports promotions, and social media presence of major NFT projects means that young people are being exposed to all the latest crypto developments in real time.
NFTs have effectively blurred the lines between finance and entertainment. Furthermore, NFT technology is being applied to various forms of entertainment including music, online video gaming items, celebrity-autographed collectibles and more.
With both crypto and NFTs there is an absence of financial regulators like central banks. This means that, unlike traditional financial services, most blockchain technology platforms do not have any built-in age verification or safety and anti-fraud protocols in place to protect children.
As such this may negatively impact minors and young adults who dabble in the blockchain space. However, there are things parents can do to help young people stay safe:
