What Is Cryptocurrency?
Cryptocurrency is a type of virtual money. It is not physical like coins or bills, and it is not issued by any government. Instead, it exists on an encrypted digital network called the blockchain. People use cryptocurrency to buy goods and services or trade it like stocks. Some popular cryptocurrencies include Bitcoin, Ethereum, and Dogecoin.
Many people think cryptocurrency could be the future of finance, so it’s important for young people to learn about it. However, investing in crypto is risky and mostly unregulated. Teens should only invest money they can afford to lose.
Can Teens Invest in Cryptocurrency?
Yes, teens can invest in cryptocurrency. There are no laws stopping minors from buying crypto. However, most U.S.-based cryptocurrency exchanges require users to be at least 18 years old. Exchanges like Coinbase or Binance.US allow people to buy and sell cryptocurrencies by depositing money, but they often ask for proof of age.
If a teen wants to invest in cryptocurrency, there are ways to do so with the help of a parent or guardian.
What Does It Mean to Invest in Cryptocurrency?
Cryptocurrency is decentralized, meaning it is not controlled by any government or central bank. It uses advanced encryption methods to secure transactions on blockchain networks. Despite these security measures, crypto traders can still be targeted by hackers and scammers.
The value of cryptocurrency depends on supply and demand. Prices often change quickly and dramatically, which makes it a risky investment. Some cryptocurrencies lose all their value and disappear completely, while others fluctuate widely. For example, Bitcoin’s value has ranged from a few cents in 2010 to over $68,000 in 2021, only to fall sharply before recovering again.
Popular Cryptocurrencies
- Bitcoin: Bitcoin (BTC) was the first cryptocurrency, created in 2009. It became popular as more people started mining it and trading it on dedicated exchanges. Its value has changed dramatically over the years, reaching highs of $68,000 in 2021.
- Ethereum: Ethereum’s native token is called Ether (ETH). It is the second-most popular cryptocurrency and is known for enabling smart contracts. These contracts allow people to build apps on the blockchain for various purposes. Ethereum is programmable and widely used for decentralized applications.
What Is a Crypto Wallet?
A crypto wallet is where cryptocurrency owners store their private keys—codes that give them access to their crypto. While the term “wallet” suggests storing money, it actually stores these keys. Cryptocurrency itself always remains on the blockchain.
Wallets come in two types:
- Exchange Wallets: These are built into crypto exchanges where users can buy and trade cryptocurrency.
- Personal Wallets: These are separate wallets controlled entirely by the owner, offering more security and privacy.
Using a crypto wallet, you can transfer funds, exchange cryptocurrencies, and keep your private keys safe.
Types of Cryptocurrency
There are thousands of cryptocurrencies, but they fall into two main categories:
- Coins: These are native to their own blockchain networks, like Bitcoin and Litecoin.
- Tokens: These are built on existing blockchain networks and have various uses, such as verifying actions in apps. Examples include Tether and Chainlink.
Ways Teens Can Invest in Crypto
Teens have several options for investing in cryptocurrency:
- Custodial Accounts: These are investment accounts managed by a parent or guardian. For example, EarlyBird allows parents to invest in Bitcoin or Ethereum for their children.
- Crypto Apps: Some apps, like Step, allow teens to earn or invest in cryptocurrency with parental oversight. These apps often require an adult to set up the account.
- Decentralized Exchanges: These platforms allow direct transactions on the blockchain without age restrictions. However, they are unregulated and risky. Teens need existing cryptocurrency to use these platforms, as they do not support direct cash-to-crypto exchanges.
Risks of Investing in Cryptocurrency
Cryptocurrency investments carry significant risks:
- Volatility: Crypto prices can rise or fall dramatically. It’s common to see 50% or greater drops in value, making it a very unstable investment.
- Regulatory Uncertainty: Governments may introduce laws to ban or restrict cryptocurrencies, which could reduce their value or make them worthless.
- Security Issues: While blockchain technology is secure, scams and hacks have caused billions of dollars in losses since cryptocurrency was created. Protecting your wallet and account is crucial, but there is always a risk of fraud.
Alternative Investments to Cryptocurrency
For teens interested in investing, there are other options that may carry less risk:
- Real Estate: Teens can invest indirectly in real estate through real estate investment trusts (REITs) or ETFs. These options offer exposure to the real estate market without requiring large upfront costs.
- Precious Metals: Investing in gold, silver, or platinum can provide stability. Gold, for example, holds its value over time.
- Collectibles: Items like sports cards, artwork, or rare toys can appreciate in value. However, this market is also risky and requires careful research.
Can a Minor Have a Crypto Wallet?
Yes, minors can have self-controlled crypto wallets. However, wallets linked to regulated exchanges are generally restricted to users aged 18 or older.
What Is the Best Crypto Account for Kids?
A custodial account managed by a parent or guardian is the best option for kids. These accounts provide some level of oversight and regulation, making them a safer way to invest in cryptocurrency.
At What Age Should You Get Into Crypto?
Teens can start learning about cryptocurrency at a young age as part of their financial education. Understanding how blockchain technology and digital wallets work is valuable, even if they don’t invest right away. If they choose to invest, starting with a small amount can be a good way to learn without taking on too much risk.
Conclusion
Cryptocurrency is an innovative and evolving technology that offers new ways to handle money and invest. While it has provided impressive returns for some, it remains highly speculative and risky. Teens should focus on learning about how crypto works before investing. If they decide to invest, they can do so through custodial accounts or apps with parental guidance.
