During the last couple of years, cryptocurrencies and NFTs were one of the biggest trends on social media. They represent a complicated form of financial technology that got the attention of mainstream news media and even had a commercial air during the 2022 Super Bowl. How does it all work? And is it something that I should worry about? We’re going to break down some of the questions you may have about this technology and highlight some of the controversial issues surrounding the social media craze.
What are cryptocurrencies and NFTs?
Cryptocurrencies are a form of digital currency created for use on the Internet. GetKidsInternetSafe previously published the article “What is Bitcoin anyways?” that goes in-depth on the subject, but we’ll cover some of the basics here as well.
Bitcoin and other more recent cryptocurrencies like Ethereum and Dogecoin were created to have a decentralized form of currency that was not tied to banks or other financial institutions following the 2008 housing market crash.[1] Cryptocurrencies are not stocks but they are often traded in a similar way because of how much their value can fluctuate over time. All cryptocurrencies are managed using a type of program called a blockchain, which is a publicly viewable list of all transactions and activity done with a specific cryptocurrency. All transactions made on a blockchain are verified by the other users, which makes it impossible for anyone to make changes to old transactions without that change being corrected immediately.
Non-Fungible Tokens, more commonly referred to as NFTs, are another technology created using blockchains. NFTs function like serial numbers attached to virtual data and are used to show ownership and authenticity of that data similar to a deed or certificate. They cannot be copied, substituted, or subdivided, and they’re used to create a unique digital object. The most common form of NFTs is images, but the technology can be used for music, videos, documents, or anything else that can be stored digitally.
How did NFTs become so successful?
NFTs are a technology that has been around since 2014[2], but they were brought into the media spotlight in March 2021 when digital artist Beeple sold an NFT collage of his artwork for 69 million dollars.[3]
The trend exploded in popularity afterward, with the next series of major sales coming from original creators of various early internet viral memes selling their creations as NFTs for tens or hundreds of thousands of dollars[1]. In the digital art community, NFTs were also heavily marketed to artists as a solution for online copyright infringement and art theft.[2]
Major investors like Elon Musk[4] and Mark Cuban[5] began to invest in cryptocurrencies, and celebrities like Matt Damon[6] and Larry David[7] have acted in advertisements for the new technology, with one of them playing during the 2022 Superbowl. NFTs had become a lucrative business model in only a couple of months, but this surge in popularity did not last for long.
The Technical Problems with NFTs and Cryptocurrency
As NFTs and cryptocurrencies both began to receive mainstream attention and thousands of new users, various technical problems began to hamper their success. Despite the early successes in March, by June 2021 the market had already dropped by 90%.[1]
Slow speeds
Blockchain technology is not a quick or efficient system for handling monetary transactions, and if a user tried to use their cryptocurrency to make a purchase, they would face wait times of 30 minutes to several hours in a queue before their transaction would be approved[8].
Security Problems
Due to unaddressed security risks in their programming, NFTs became notorious for being stolen by hackers.[9][10] Because blockchains cannot have their history changed, and because they’re unregulated by the government, if your NFTs were stolen this way there was no way to recover them.[8] NFTs also don’t have any inherent connection to copyright or trademark law, so your digital ownership only extended to the NFT program itself, not the artwork that it was connected to.[2]
Another problem caused by the lack of regulation was that the artists who had been the target of early NFT marketing were facing more art theft problems than before. There were no protections to prevent somebody from creating NFTs using another person’s art, and many artists found that their art was already being sold on cryptocurrency apps without their approval or knowledge. In some cases, NFTs were created using artworks from deceased artists without consulting the artists’ families.[11]
Environmental Problems
NFTs and cryptocurrency are also horrible for the environment. Because the process of operating and interacting with a blockchain requires hundreds or thousands of computers to be operating all at once, they consume extreme amounts of electricity. Conservative estimates for the total amount of electrical energy consumed and CO2 emissions caused by cryptocurrency rival those of mid-sized European countries.[12]
The Financial Risks of Crypto
The largest problem with cryptocurrency and NFTs, however, is that most projects were intentionally made to scam people out of their money. These digital assets only have value because of the amount of real money that is inserted into them by investors, and unlike banks or the stock market, they don’t generate additional wealth over time.[13] To make a profit with cryptocurrency, it has to be sold to somebody willing to spend more money on it than what you originally purchased it for.
“Pump-and-dump” scams like this are not only common but encouraged in many cryptocurrency communities as a way to make quick profits.[1] Most artists who began selling their art as NFTs were selling at a loss after transaction fees and costs associated with creating the NFTs.[14] The cryptocurrency apps which handle these transactions are aware of these practices, and many of the security problems mentioned earlier were neglected because their creators profited off of the transactional fees.[10]
How to Protect Yourself and Your Family from Cryptocurrency Scams
While the trend of cryptocurrency and NFT projects being advertised has gone on the decline, there are still pushes for the technology to be used in other parts of the web.
Here are some things you can do to help protect your family from cryptocurrency and NFT-related scams:
Keep an eye on new internet products and services that talk about NFTs, Ethereum, Bitcoin, blockchains, and Web3.0. These are all buzzwords that are commonly associated with each other to help sell the idea of cryptocurrency on social media.
Sign up for the FREE GKIS Connected Family Screen Agreement, which covers the basics of preventing digital injuries and opens a forum of discussion for you and your family to discuss internet safety.
Take a look at the How to Spot Marketing and Cybersecurity & Red Flags Supplements for the GKIS Connected Family Screen Agreement, which can help you to stay safe against identity theft, hacking, and scamming strategies common on the internet.
Thanks to CSUCI intern Brandon Bishop for researching the history of cryptocurrency development and authoring this article.
I’m the mom psychologist who will help you GetKidsInternetSafe.
