What Is Cryptocurrency?
Cryptocurrency is a type of digital currency that is exchanged on an encrypted and publicly verifiable network called the blockchain. At least one recent survey found a majority of Americans believe that crypto is the future of finance, so it’s well-suited for young people wanting to learn about investing. Cryptocurrency is considered a decentralized currency, as there is no controlling party or central bank that issues it.
Cryptocurrency is designed to be ultra-secure, using cryptography techniques and encryption algorithms to secure the blockchain networks on which it is exchanged, but crypto traders can be exposed to hacks or fraud. This is partly because the blockchain is run by independent computers that exist outside the control of any government or regulatory authority.
- Cryptocurrency is a digital currency exchanged on an encrypted and publicly verifiable network called the blockchain.
- There are more than 20,000 cryptocurrencies in existence, but only a few have significant market value.
- People of any age, even teens, can invest in cryptocurrency, but many U.S.-based crypto exchanges require users to be at least 18 years old.
- Crypto investing is high-risk, mostly unregulated, and considered speculative, so teens shouldn’t invest more than they—or their parents—are willing to lose.
Can Teens Invest in Cryptocurrency?
Yes, teenagers can invest in cryptocurrency. While many U.S.-based investments aren’t available to minors, anybody can invest in cryptocurrencies.There are no current regulations preventing teens from buying or selling crypto, though there are some roadblocks to investing.
The most popular way to buy cryptocurrency is through a centralized exchange like Coinbase or Binance.us. These exchanges allow you to deposit U.S. dollars and purchase crypto easily. But most exchanges require that you are at least 18 years of age to register for an account.
So if you are a teen who wants to invest in cryptocurrency, there are only a few ways to do it, which will be discussed later in this story.
What It Means To Invest in Cryptocurrency
Cryptocurrency is given value the same way any other asset is, through the laws of supply and demand. Because many cryptocurrencies can be bought or sold on public and private exchanges, the price is determined by the market for the given cryptocurrency.
This means that you can invest in any given crypto asset, and the price will fluctuate based on market demand. And while cryptocurrencies are considered speculative investments, there are some that hold more value than others, based on popularity, global adoption, and the value created for them in the marketplace.
Bitcoin (BTC) was the first cryptocurrency. It was created in 2009 by a programmer using the alias Satoshi Nakamoto. Bitcoin was given as a reward to users for processing and verifying transactions on the original blockchain network.
As it grew in popularity, more and more people began mining Bitcoin, and eventually exchanges were established for the sole purpose of buying and trading Bitcoin.
Bitcoin’s price rose from just a few cents in 2010 to more than $20,000 in 2017. Then it suffered a period of declining prices, before surging to a record high of more than $68,000 in 2021. Bitcoin prices fell from those levels, falling sharply below $20,000 before crossing that milestone again in 2023.
You can invest in Bitcoin through crypto exchanges, brokerage accounts, and money apps.
Ethereum (its native token is called Ether, or ETH) is the second-most popular cryptocurrency today, and pioneered smart contract functionality on the blockchain. Ethereum has thousands of apps built on its blockchain that use these smart contracts, and it offers higher transaction speeds than the standard Bitcoin network.
Ethereum is programmable, so it’s seen as the operating system on which many decentralized crypto apps are being built today. Ethereum can be bought or sold on most major crypto exchanges, through some brokerages, and through finance apps as well.
What Is a Crypto Wallet?
When anyone, including teenagers, buys a cryptocurrency, it needs to be stored somewhere. In most cases, if you buy a cryptocurrency on a public exchange, they will hold the crypto for you in a built-in exchange wallet. And if you want to take custody of the cryptocurrency yourself, you can create a crypto wallet and transfer the cryptocurrency to it.
A crypto wallet is where the private keys to your cryptocurrency are stored. While the term “wallet” might make you think of a place you keep your money, a crypto wallet is different. All cryptocurrencies live on the blockchain, but your ability to use those cryptocurrencies requires access to private keys. Crypto wallets let you control the keys to your crypto coins, which means you can choose how to manage it.
With a crypto wallet, you can transfer funds to another wallet, exchange your cryptocurrency for different tokens, or simply store your private keys for safekeeping.
Types of Cryptocurrency
There are more than 20,000 cryptocurrencies in existence. While many of them don’t hold much value, there is roughly $1 trillion in total value among cryptocurrencies today. But they all fall into two main categories:
- Coins: Crypto coins refer to native cryptocurrencies that exist within a blockchain’s code. These cryptocurrencies each have their own blockchain network, and are meant to be exchanged as a form of currency (like U.S. dollars or euros). Some examples of crypto coins are Bitcoin, Litecoin, and Dogecoin.
- Tokens: Tokens are cryptocurrencies built on top of an existing blockchain network. Tokens can be used for more than just exchange, they also can be used in blockchain applications to manage access, track products, or verify actions within the app. Examples of these include Tether and Chainlink.
There are many ways to use each type of cryptocurrency, with more and more solutions being developed each year.
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 you can set up and manage crypto trading accounts.
Crypto Custodial Account
A custodial account is an adult-managed investment account that allows parents or guardians to open an account on behalf of a child. They give parents or family the ability to invest for their minor kids, but the assets belong to the child.
For example, EarlyBird is one of the first custodial accounts to offer crypto investing. You can deposit funds to your child’s EarlyBird account, and within the account, you can choose to invest in Bitcoin or Ethereum. EarlyBird also supports investing in ETFs and other traditional investment choices.
There are some crypto apps that allow kids to earn crypto. Apps like Step offer a simple way to buy and sell Bitcoin for a flat fee. Step offers a secured credit card for teens and a finance app that lets your kids buy and sell Bitcoin within the app. Step requires an adult sponsor to open an account for a minor.
Crypto exchanges that are decentralized process transactions directly on the blockchain. Because these exchanges are currently unregulated, there are no age limits on use, and teens can connect their own digital wallet and trade cryptocurrency in this way.
These exchanges are highly risky, though, and there is no way to exchange fiat currency (such as U.S. dollars) for crypto. You must already have crypto in a digital wallet to use them.
Risks of Investing in Cryptocurrency
Crypto investing is risky, period. It is considered a speculative investment, and you should never invest more than you are willing to lose.
Here are a few of the basic risks to investing in cryptocurrency, for teens as well as everyone else:
Crypto is by nature volatile. As a new asset class, there remain a lot of ups and downs in price as more and more investors enter the market. This volatility means you could lose some (or all) of your investment, and you should expect to see 50% or greater drops in your crypto value at times.
Crypto is a highly unregulated asset, and governments around the world are applying varying degrees of oversight to it. There is a risk that some cryptocurrencies can be banned outright, or that certain governments will restrict their use. These events could significantly affect the value of your investment significantly.
While crypto itself is secured through encryption and cryptography, there are quite a few scams and hacks that have cost investors billions of dollars since the creation of crypto in 2009.
While you can take steps to secure your crypto wallet, exchange accounts, and other crypto apps, there is a higher risk of fraud than with most other assets.
Alternative Investments to Cryptocurrency
While investing in crypto is an attractive option to many, there are other speculative investments that can help you diversify your portfolio without some of the risks that come with crypto investing.
While buying real estate can be expensive, you can invest in real estate investment trusts (REITs) and real estate-focused exchange-traded-funds (ETFs) to gain exposure to real estate investments. REITs offer an opportunity to invest directly in commercial and residential real estate projects, with some paying out regular dividends from rents collected.
Precious metals such as gold, silver, and platinum offer another way to invest outside the stock market. Gold is seen as a store of value, with its purchasing power staying similar over time, while other precious metals offer a speculative investment that can provide high returns (or losses). Precious metals haven’t had a great return as of late, but can be another way to diversify your investments.
Collectibles have made a comeback in the past few years, with baseball cards, Pokémon cards, classic cars, and artwork gaining all-time-high demand. Collectibles can be a good way to invest a small portion of your money with the potential for outsized returns, but there is also a significant risk of loss if you buy the wrong thing at the wrong time. Collectible prices are very volatile, but some can grow in value over long periods of time.
Can a Minor Have a Crypto Wallet?
Yes. There are no age limits on self-controlled crypto wallets. 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?
You should begin learning about crypto as a pre-teen or teenager, the same time that you start learning other financial concepts. You don’t have to be a crypto investor to take an interest in the space and how it all works. If you want to invest a small amount of money in cryptocurrencies as a teen, it could be a great way to learn about 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 18 years old to use them.
The Bottom Line
Cryptocurrency is a new and disruptive technology that offers another way to transact business, as well as to invest. Bitcoin and other top cryptocurrencies have, at times, provided impressive returns over the past decade.
But investing in crypto remains very speculative, and the potential for loss is much greater than with most other investments. If you are still a teenager, the best thing you can do is to continue learning about cryptocurrency and how it’s changing the financial world. And if you want to invest a small amount of your money in this new asset, you can do so through a custodial account or approved crypto app.