Cryptocurrency is a kind of digital money that is traded using a secure and publicly confirmable network known as the blockchain. Many people in the United States believe that cryptocurrency will play a big role in the future of finances. This makes it a good choice for young individuals who want to learn about investing.
What Is Cryptocurrency?
Cryptocurrency is a type of money that is not controlled by any single group or central bank. It is made to be very secure by using special codes and techniques to protect the networks where it is traded. However, people who trade cryptocurrency might face risks like hacking or fraud. This is because the blockchain is managed by independent computers that aren’t controlled by any government or authority.
Can Teens Invest in Cryptocurrency?
Certainly, teenagers have the option to invest in cryptocurrency. While some investment opportunities in the United States are not open to minors, anyone can invest in cryptocurrencies. At present, there are no specific rules that prevent teenagers from purchasing or selling crypto, although there are certain obstacles they might encounter along the way.
The most commonly used method to buy cryptocurrency is by using a centralized exchange such as Coinbase or Binance.US. These platforms allow you to put in U.S. dollars and easily acquire cryptocurrency. However, most of these exchanges require you to be at least 18 years old to create an account.
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For teenagers interested in investing in cryptocurrency, there are only a limited number of approaches available, which will be explained in more detail later in this article.
What It Means to Invest in Cryptocurrency
Cryptocurrency gets its value in the same manner as other things you might invest in: by how much people want it. Just like with other items, if more people want a particular cryptocurrency, its value goes up. And if fewer people are interested, its value goes down. This is due to the law of supply and demand.
Since many cryptocurrencies can be bought and sold on different types of markets – some that are open to the public and others that are private – the price of each cryptocurrency is determined by how much people are willing to pay for it. So, when you decide to invest in a certain cryptocurrency, its price can go up and down depending on how many people want to buy or sell it.
It’s worth noting that while investing in cryptocurrencies can be risky since their value can change a lot, some of them are more valuable than others. This can depend on how well-known they are, how widely they’re used around the world, and how useful people find them.
Bitcoin
Bitcoin (BTC) was the very first cryptocurrency. It came into existence in 2009, and it was made by a programmer who used the name Satoshi Nakamoto. To start with, Bitcoin was given to people as a reward for helping with transactions on the original blockchain network and making sure they were correct.
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As more and more people found out about Bitcoin and liked using it, more people also started a process called “mining,” which is like creating new Bitcoins. Over time, special places called exchanges were set up just for buying and trading Bitcoin.
The value of Bitcoin went up a lot as more people wanted to have it. In 2010, it was only worth a few cents, but by 2017, it was worth more than $20,000! After that, its value went down for a while, but then in 2021, it suddenly went way up to more than $68,000 – the highest it had ever been. After some time, its value went down again, falling below $20,000, but in 2023, it managed to reach that high price once more.
(Source: CoinMarketCap. “Bitcoin (BTC): Bitcoin to USD Chart,” choose the time range “All.”)
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Ethereum
Ethereum, known by its native token Ether (ETH), is the second most well-liked cryptocurrency nowadays. It was the first to introduce the concept of smart contracts on the blockchain. Thousands of applications have been developed on Ethereum’s blockchain, utilizing these smart contracts to make things work. Moreover, Ethereum allows transactions to happen faster than the regular Bitcoin network.
Ethereum is designed in a way that it can be programmed for various purposes. This makes it act like an operating system for numerous decentralized cryptocurrency applications that are being constructed today.
If you want to get some Ethereum, you can buy or sell it on most of the major cryptocurrency exchanges. It’s also available through certain brokerage services and financial apps.
What Is a Crypto Wallet?
Whenever someone, even a teenager, buys a cryptocurrency, they need a place to keep it safe. If you purchase a cryptocurrency on a public exchange, they usually store it for you in a wallet provided by the exchange. However, if you prefer to personally take care of your cryptocurrency, you can make your own crypto wallet and move the cryptocurrency into it.
A crypto wallet is like a secure vault where the special codes that access your cryptocurrency are kept. While the word “wallet” might make you think of a place for money, a crypto wallet is a bit different. All cryptocurrencies exist on the blockchain, but using your cryptocurrencies involves having access to these special codes, called private keys. Crypto wallets allow you to control these keys for your crypto coins, giving you the ability to decide how to manage your cryptocurrency.
Types of Cryptocurrency
There are over 20,000 different cryptocurrencies available. While a lot of them aren’t worth very much, all together they add up to about $1 trillion in value.
These cryptocurrencies can be put into two main groups:
- Coins: Crypto coins are the main cryptocurrencies that are part of a specific blockchain’s design. Each of these cryptocurrencies has its own unique blockchain network, and they’re meant to be used just like regular money, such as U.S. dollars or euros. Some examples of crypto coins are Bitcoin, Litecoin, and Dogecoin.
- Tokens: Tokens are a different kind of cryptocurrency. They are built on top of an existing blockchain network. Tokens can do more than just be used as money – they can also be used in different ways within applications that work on the blockchain. For example, they might be used to control access to an app, keep track of products, or confirm actions within the app. Examples of token-based cryptocurrencies include Tether and Chainlink.
There are lots of ways to make use of both types of cryptocurrencies, and every year, more and more new ideas are developed.
Ways That Teens Can Invest in Crypto
Teens investing in the crypto market are no different from adults in the choices they have for transacting digital assets. The following are the main ways that you can set up and manage crypto trading accounts.
Crypto Custodial Account
A custodial account is a type of investment account managed by adults. It lets parents or guardians create an account for their child. This allows parents or family members to invest money for the child, but the things bought with that money are owned by the child.
For instance, EarlyBird is among the first custodial accounts that allow investing in cryptocurrencies. You can put money into your child’s EarlyBird account and, in that account, decide to invest in Bitcoin or Ethereum. EarlyBird also lets you invest in things like exchange-traded funds (ETFs) and other traditional investment options.
Crypto Apps
Certain cryptocurrency applications provide the opportunity for young people to earn cryptocurrency. Apps like Step make it easy for kids to purchase and sell Bitcoin by charging a fixed fee.
Step presents a secure credit card designed for teenagers and also offers a finance app that enables kids to engage in Bitcoin transactions directly within the app itself. To open an account for a minor, an adult sponsor is required.
(Source: Step Help Center. “Who Can Approve My Account and Sponsor Me?”)
Decentralized Exchange
Decentralized crypto exchanges work by directly handling transactions on the blockchain. Since these exchanges are not regulated at the moment, there are no age restrictions, allowing teenagers to link their own digital wallets and engage in cryptocurrency trading using this approach.
However, it’s important to note that these exchanges come with a high level of risk. Additionally, they don’t provide the capability to swap regular currency (like U.S. dollars) for cryptocurrency. To use them, you need to already possess cryptocurrency in your digital wallet.
Risks of Investing in Cryptocurrency
Investing in cryptocurrency carries inherent risks. It’s classified as a speculative investment, meaning there’s uncertainty involved. It’s crucial to avoid investing more money than you’re prepared to lose.
Let’s look at some fundamental risks associated with cryptocurrency investment, applicable to teenagers and all investors alike:
Volatility
Cryptocurrency is naturally very unpredictable. Since it’s a relatively new type of investment, its price often goes through significant fluctuations as more people start investing in it. This unpredictability means there’s a chance you might lose a portion or even all of the money you put in. It’s important to be prepared for instances where the value of your cryptocurrency could drop by 50% or even more.
Regulatory Uncertainty
Cryptocurrency lacks strong regulations and is subject to different levels of government control worldwide. There’s a possibility that specific cryptocurrencies could be completely banned, or certain governments might limit how they can be used. Such situations could have a substantial impact on the value of your investment.
Security
Even though cryptocurrencies use encryption and cryptography to stay secure, there have been numerous scams and hacking incidents that have resulted in billions of dollars being lost by investors since cryptocurrencies were introduced in 2009.
Alternative Investments to Cryptocurrency
Although investing in cryptocurrency might seem appealing to many, there are additional speculative investment choices that allow you to spread out your investments and potentially avoid some of the risks associated with investing in cryptocurrencies.
Real Estate
Purchasing real estate can be costly, but you have the option to invest in real estate investment trusts (REITs) and exchange-traded funds (ETFs) that focus on real estate. This way, you can still get involved in real estate investments. REITs enable direct investment in various commercial and residential real estate ventures, with the possibility of receiving consistent dividend payments from the rents they generate.
(Source: Investor.gov, U.S. Securities and Exchange Commission. “Real Estate Investment Trusts (REITs).”)
Precious Metals
Valuable materials like gold, silver, and platinum present an alternative avenue for investment that doesn’t involve the stock market. Gold is considered a way to protect value, as its purchasing power tends to remain steady over time. On the other hand, other precious metals offer a speculative type of investment that could yield significant gains (or losses). Lately, precious metals haven’t shown impressive returns, but they do provide a means to add variety to your investment portfolio.
(Source: Goldline. “Current Precious Metal Spot Prices.”)
Collectibles
In recent years, collectibles like baseball cards, Pokémon cards, vintage cars, and artwork have regained popularity and are in high demand.
Investing in collectibles can be a smart strategy for dedicating a small part of your funds, as they offer the possibility of substantial gains. However, it’s important to note that there’s a notable risk of losing money if you make a purchase at the wrong moment or of the wrong item. Prices of collectibles can change a lot, but certain items may increase in value over extended periods.
Can a minor have a crypto wallet?
Yes for self-controlled crypto wallets, which have no age limits. But wallets that are part of a regulated crypto exchange are limited to users who are at least 18 years old.
What is the best crypto account for kids?
A custodial account is the best crypto account for kids, as it is opened and managed by an adult, but the crypto investments are in the child’s name. They are typically regulated as well, making them a more secure way to invest in cryptocurrency.
At what age should you get into crypto?
Starting to learn about cryptocurrencies as a preteen or teenager is a good idea, just like you learn about other money-related topics during that time. You don’t need to become a crypto investor to be curious about this field and its workings. If you’re interested in investing a small sum of money in cryptocurrencies while you’re a teenager, it can be an excellent opportunity to understand things like digital transactions, the blockchain, crypto wallets, and distributed ledger technology.
What is the minimum age to be able to use cryptocurrency?
There is no minimum age to use cryptocurrency, but most regulated crypto apps and exchanges require that you be at least 18 years old to use them.
The Bottom Line
Cryptocurrency is a fresh and groundbreaking technology that introduces an alternative method for doing business and exploring investment opportunities. Bitcoin and other prominent cryptocurrencies have occasionally demonstrated remarkable gains in the last ten years.
However, it’s important to note that investing in cryptocurrency is still quite speculative, and the possibility of losing money is significantly higher compared to many other investments. For teenagers, the best approach is to keep expanding your understanding of cryptocurrency and its impact on the financial landscape. If you’re interested in investing a small portion of your money in this new type of asset, you can accomplish this through a custodial account or a verified crypto app.
Trade on the Go. Anywhere, Anytime
One of the biggest crypto exchanges in the world is open and available to you. Experience low fees and special customer support as you trade in a secure environment. You’ll also have access to helpful Binance tools that let you easily see your trading history, set up automatic investments, look at price charts, and convert currencies without any fees. You can create an account for free and become part of the vast community of traders and investors in the global crypto market.
