What Teens Need to Know About Cryptocurrency

What Is Cryptocurrency? Cryptocurrency is virtual money that can be bought and sold on an encrypted network called the blockchain or used to pay for a growing number of goods and services. It is not issued by any government and it has no physical existence. Many rival cryptocurrencies have been created, from Bitcoin to Ethereum and Doge. Many Americans believe that crypto is the future of finance, making it a reasonable subject for young people to learn about. But should they be investing in it? There are no current regulations preventing minors from investing in cryptocurrencies, though they face barriers to entry. KEY TAKEAWAYS Cryptocurrency is a digital currency that can be bought and sold on an encrypted network called the blockchain. More than 20,000 cryptocurrencies are in existence, but only a few have significant market value. People of any age can legally invest in cryptocurrency, but many U.S.-based crypto exchanges require users to be at least 18 years old. Crypto investing is high-risk and mostly unregulated, 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 legally. While many U.S.-based investments aren’t sold to minors, there are no laws forbidding anyone to invest in cryptocurrencies.1 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. But most exchanges require registrants to be at least 18 years of age. If you are a teen who wants to invest in cryptocurrency, there are a few ways to go about it. What It Means to Invest in Cryptocurrency Cryptocurrency is a decentralized currency, meaning that it is not issued by a government's central bank. Cryptocurrency is designed to be ultra-secure, using cryptography techniques and encryption algorithms to secure the blockchain networks on which it is exchanged. Nevertheless, crypto traders can be exposed to hacks or fraud. The blockchain is run by independent computers that exist outside the control of any government or regulatory authority. Cryptocurrency gets its value the same way any other asset does: The law of supply and demand determines its price. This means that you can invest in any given crypto asset, and the price will fluctuate based on market demand. Cryptocurrencies are speculative investments, meaning they are at risk of extreme price fluctuations. Investors can lose most or all of the money they put in. "Dead coins" that have dropped out of existence are common. Even the best-known survivors tend to fluctuate wildly in value. Bitcoin Bitcoin (BTC) was the first cryptocurrency. It was created in 2009 by a programmer using the alias Satoshi Nakamoto. Bitcoins were given as a reward to users for processing and verifying transactions on the original blockchain network.2 As it grew in popularity, more began mining Bitcoin, and eventually exchanges were established for the sole purpose of buying and trading Bitcoin. Bitcoin’s price rose from a few cents in 2010 to more than $20,000 in 2017. 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 2023.3 You can invest in cryptocurrencies through cryptocurrency exchanges, brokerage accounts, and some money apps. Ethereum Ethereum (its native token is called Ether, or ETH) is the second-most popular cryptocurrency today. It pioneered smart contract functionality on the blockchain, providing another practical use for the blockchain beyond verifying cryptocurrency transactions. 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.4 Ethereum is programmable, so it’s seen as the operating system on which many decentralized crypto apps are being built today.5 Ethereum can be bought or sold on most major crypto exchanges, some brokerages, and some finance apps. What Is a Crypto Wallet? When anyone of any age buys cryptocurrency, it needs to be stored somewhere. In most cases, if you buy a cryptocurrency on a public exchange, the crypto will be held for you in a built-in exchange wallet. If you want to take custody of the cryptocurrency, you create a personal crypto wallet and transfer the cryptocurrency to it. A crypto wallet holds the keys to your cryptocurrency. While the word wallet suggests a place to keep money, a crypto wallet keeps only the keys to your money. All cryptocurrencies live on the blockchain, and using them requires access to those keys. Note Using a crypto wallet, you can transfer funds to another wallet, exchange your cryptocurrency for other tokens, and store your private keys for safekeeping. Types of Cryptocurrency There are thousands of cryptocurrencies in existence. While many of them don’t hold much value, the global cryptocurrency market cap is roughly $2.5 trillion as of April 2024.6 All fall into two main categories: Coins: Crypto coins are the native cryptocurrencies that exist within a specific blockchain’s code. Each cryptocurrency has its own blockchain network, which is used to exchange the coins. 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 can also 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 being developed each year. Ways 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 an adult-managed investment account that allows a parent or other guardian to open an account on behalf of a child. They give parents or families the ability to invest for their minor children, but the assets legally 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 exchange-traded funds (ETFs) and other traditional investment choices.7 Crypto Apps Some crypto apps allow kids to earn crypto. Apps like Step offer a simple way to buy and sell Bitcoin for a flat fee.8 Step offers a secured credit card for teens and a finance app that lets your kids buy and sell Bitcoin within the app.9 Step requires an adult sponsor to open an account for a minor.10 Decentralized Exchange Crypto exchanges that are decentralized process transactions directly on the blockchain. Because these exchanges are currently unregulated, there are no age limits on their use and teens can connect their own digital wallets and trade cryptocurrencies. These exchanges are highly risky, 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 of investing in cryptocurrency, for teens as well as everyone else: Volatility Crypto is volatile by nature. 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. Regulatory Uncertainty The crypto industry currently enjoys relative freedom from regulation. There is a risk that some cryptocurrencies could be banned outright and that some governments will restrict their use. These events could significantly affect the value of your investment or erase it. Security While crypto itself is secured through encryption and cryptography, scams and hacks 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. Real Estate While buying real estate can be expensive, you can invest in real estate investment trusts (REITs) or real estate-focused ETFs to gain exposure while reducing risk. 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 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 remaining relatively stable over time while other precious metals can provide high returns or high losses. Precious metals haven’t had a great return as of late, but they can be another way to diversify your investments.11 Collectibles 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 the best of them grow in value over the long term. Can a Minor Have a Crypto Wallet? There are no age limits for 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 on behalf of a child. These are typically regulated, adding some level of security to cryptocurrency investing. At What Age Should You Get Into Crypto? Cryptocurrency is well enough established now that it should be included in basic financial education for a preteen or teenager. 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 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 register. 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. Investing in crypto remains very speculative, and the potential for loss is much greater than with most other investments. If you are a teenager, the best thing you can do is to continue learning about cryptocurrency and how it’s changing the financial world. 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. Young Person Looking at Smartphone Young person looking at their smartphone. Alice Morgan / Investopedia Compete Risk Free with $100,000 in Virtual Cash Put your trading skills to the test with our FREE Stock Simulator. Compete with thousands of Investopedia traders and trade your way to the top! Submit trades in a virtual environment before you start risking your own money. Practice trading strategies so that when you're ready to enter the real market, you've had the practice you need. Try our Stock Simulator today >>