This is part two of two articles I’ve written about parents teaching their children about digital assets. Part one was How Parents Can Teach Their Kids About Cryptocurrency. This second article is about how NFTs work and explaining them to children.
It’s a new digital world out there filled with sexy, snarky terms and acronyms that can instantly confuse even sophisticated investors. Let’s unpack the basics of NFTs, or non-fungible tokens, and explore some of the cocktail, colloquial terms that apply to digital assets, and then I’ll introduce a fun way kids can learn about the NFT market.
What are NFTs, or Non-Fungible Tokens?
This is a clumsy name, but an NFT (opens in a new tab) is a unique virtual digital asset that is not fungible, meaning that it cannot be easily replaced by another identical item. A dollar, for example, is fungible because it can be replaced by another dollar. Cryptocurrency is also fungible – one Bitcoin can be replaced by another with the exact same value.
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Each NFT can only have one owner at a time. It is unique and cannot be duplicated in its form. Ownership is managed on a blockchain (opens in a new tab) and has a unique ID. The buyer of the NFT can sell it and hopefully make money on the sale, if the value goes up.
What can become an NFT?
Almost anything can become an NFT – collectibles (like trading cards), artwork, videos, animated characters, music, etc. NFTs are created by artists or others through a process called minting.
Why do you want to buy an NFT?
Buying an NFT might make you look cool in front of your friends, but like most assets, other than government bonds or bank savings accounts, for example, NFT assets can increase in value at a future date. It’s a new trend, but it’s speculative.
Here are some NFT related terms to help you follow NFT conversations (more here (opens in a new tab)):
- Cryptographic tokens (opens in a new tab): A virtual currency (token) that can be used as an asset, or medium of exchange, and will reside on a blockchain.
- Blockchain: An open ledger or spreadsheet that everyone in the crypto world has access to where all crypto transactions are recorded. Users can also use it to verify ownership.
- DAO: Decentralized autonomous organization. Most companies have a hierarchical structure, with the majority of decisions made by top management. A DAO works like a democracy, distributing decision-making power in the hands of users who own a small stake in the entity. So let’s say you buy a token, you now have a vote.
- Whale: Someone who has a lot of money to invest in an NFT project, or someone who has already invested a lot.
- Sweep the floor: Occurs when a whale or group buys up many NFT assets at the floor price to raise the average price.
- Paper hand: People who panic and quickly sell their NFTs.
- ETH: Short for Ether, the currency used to buy and sell most NFTs on the Ethereum blockchain.
- Minting: The act of creating an NFT asset and publishing the unique digital resource on a blockchain so that it can be bought or sold.
- Bet: Think of this as saving tokens for a certain amount of time to earn interest, for example with a savings account. This saving of NFTs or tokens is used to reward holders and control supply.
- Metaverse: A network of 3D virtual worlds focused on social connection. Usually it will combine several elements of technology.
- Web 3.0 (opens in a new tab): Third generation of the Internet. Web 1.0 created websites where you could read information and buy and sell from e-commerce sites like Amazon and eBay. Web 2.0 became more interactive and collaborative. We now had smartphones. Web 3.0 is defined by intelligence. Cool techniques like artificial intelligence (AI) will be used to interpret data. Moreover, in many cases data will not reside on a specific server, but can be distributed in many places.
- Carpet covers (opens in a new tab): A malicious attempt by fraudsters to lure consumers into buying an NFT.
- Hodl: A cryptocurrency term that describes a buy-and-hold investment strategy.
- Gas: The fee that users are charged for each transaction that occurs on the Ethereum blockchain.
- Mooning: Refers to an NFT project that is growing rapidly in price.
News flash: Teens actually want advice from parents about investing
I spoke with Johnson Cook, co-founder and president of Greenlight (opens in a new tab), a family fintech company. (I’m an advisor to Greenlight.) “Teaching kids about investing early helps them develop the financial skills they need to build long-term wealth and a healthy financial future.”
Cook cited a recent Greenlight survey (opens in a new tab) which found that investing is already top of mind for many teenagers, with 86% saying they want to invest but lack the knowledge. “The good news,” Cook said, “is that kids want to learn about money and investing from their parents.”
NFTs and children
You have the basics now after reading the first article and the first part of this one to start teaching your children and grandchildren about this new digital world of cryptocurrency and NFTs. But how can you get your offspring to really invest in this new and exciting world of NFTs?
Tokenz (opens in a new tab) is a new company. (I’m an advisor.) The company is not only going to introduce kids and their parents to being able to buy NFTs, but it’s dedicated to really teaching kids about NFTs. Iris Ichishita, co-founder and CEO, is committed to making sure kids will learn about this new digital world by buying and saving collectibles from their favorite characters. Children can have fun and learn to buy, sell, save and share in this new digital environment.
But I asked Ichishita, “Do kids want or need NFTs?”
She said: “It is a fundamental question. Demand will tell us whether children and families want NFTs. I think the real question is: ‘How do we prepare the next generation to engage in the digital world?’ The fact is that it is here to stay, and it is the world of children and grandchildren. Blockchain and Web 3.0 will continue to revolutionize every aspect of our transactional lives…our children’s lives. We will be failing our children if we do not educate them to participate in this new world.”
She went on to say, “Toekenz makes this education fun, interactive, and real. Kids can not only learn, but they can participate with parental supervision, to build skills and healthy habits to begin engaging in the metaverse marketplaces.”
It was recently announced that Mattel (opens in a new tab) and Boat Rocker (opens in a new tab) has entered into a licensing agreement with Toekenz.
I feel it’s important to not only educate the kids (and yourself) about NFTs, but to let you both feel the thrill of being empowered to be a part of this world.
The words of the philosopher Maimonides ring true: “Give a man a fish and feed him for a day; Teach a man to fish and you feed him for life.”
Education is our food for the future.
This article was written by and presents the views of our contributing advisor, not the Kiplinger editorial team. You can check the advisor records with the SEC (opens in a new tab) or with FINRA (opens in a new tab).
