- What is cryptocurrency?
- Why get kids interested in cryptocurrency?
- What can you do as parents?
- What are the advantages of cryptocurrency?
- What are the disadvantages of cryptocurrency?
- Frequently asked questions about cryptocurrency
Stories like that of the crypto kid, Erik Finman who invested $1,000 in Bitcoin back in 2011 and became a millionaire at 21 are not uncommon in the world of cryptocurrency. As a result, many kids are aspiring to get into the world of crypto and are asking their parents all sorts of questions about the asset class. 🤕
This article will also help you guide your kids better and answer some of their questions about cryptocurrency.
What is cryptocurrency?
If you’re going to be teaching your kids about cryptocurrencies, it’s vital that you first learn more about them yourself. Don’t worry, we’ve got you covered. 🤝
Cryptocurrency is digital money that is decentralized and is developed using blockchain technology. Most people are familiar with Bitcoin, the most popular cryptocurrency. Like fiat currency (regular money), Bitcoin can be used as a medium of exchange to buy goods and services.
Even the name sounds cryptic: The basis for cryptocurrency is cryptography. The encryption ensures the security and at the same time the transparency of cryptocurrencies. The underlying technology is the so-called blockchain. Like a public cash book, the chain documents all transactions. 🗝️
Explaining Bitcoin to kids is challenging, there are over 5000 different cryptocurrencies in circulation after all! In addition, different crypto projects have different use cases.
As it’s a new and exciting asset class, there is a lot of hype around it, and many people have been able to earn generational wealth by investing in cryptocurrencies. 💰
At the end of 2021, there are more than 15,000 cryptocurrencies around the world traded on several hundred exchanges. The total market value currently amounts to more than 2.1 trillion euros (€2,100,000,000,000). 🤑 People exchange, buy and sell more than 100 billion euros worth of cryptocurrency every day. Bitcoin makes up around 40% of the market, followed by Ethereum at around 21%, Binance Coin at around 4%, Tether at 3.2% and Solana at 2.6%.
Before investing yourself or on behalf of your kids, it’s vital to learn more about the subject.
Why get kids interested in cryptocurrency?
If you teach kids how to balance a chequebook, it won’t be long before they get bored and lose focus. But, try teaching them about financial literacy with terms like Bitcoin and cryptocurrency, and you’ve probably got their attention. Kids are becoming more and more interested in cryptocurrency because:
- Cryptocurrencies are the talk of the town; the fear of missing out is real.
- The idea of getting rich quickly is fascinating for kids.
- Kids are very tech-savvy and want to stay updated about every new technology and innovation.
What can you do as parents?
As parents, while you want to allow your kid to find their own path exploring new asset classes and technologies, it’s your responsibility to guide them in their journey.
Here’s what you can do:
👉 Talk to them about the technology
Teach your kid all about the technology behind cryptocurrencies, like blockchain. While there are certainly some downsides to too much exposure to technology, it is likely to continue playing an important role in your child’s life. Therefore, you should regularly discuss the scope of technology, how it might evolve, and how they can make the most out of it.
👉 Help your kid learn
Get your child excited about the history of cryptocurrencies and encourage them to learn more about the topic. You can even encourage them to learn how to code and program their application using blockchain technology.
👉 Teach them how to buy crypto
When they’re old enough, help your kid purchase their first cryptocurrency from a crypto exchange online. If things go well, maybe your child could be the next Erik Finman?
👉 Teach them how to save and invest
Encourage kids to save more and invest a part of their savings in cryptocurrencies. This will help them make a habit of investing and encourage good financial habits.
👉 Help them earn with crypto
By trading and mining cryptocurrencies, kids these days can earn a handsome amount of money. For instance, two 14- and 9-year-old siblings earned over $30,000 a month mining cryptocurrency. You can help your child do the same!
👉 Teach them how to leverage the power of social media
While the jury’s still out on whether it’s safe for kids to have a social media profile, using social media for educational purposes can be highly beneficial for them.
What are the advantages of cryptocurrencies?
The biggest difference between cryptocurrency and fiat currency is decentralized finance without the traditional, centralised structures of banks and capital accumulation in specific locations.
Here are some advantages of cryptocurrencies:
- Decentralised: Participation in the crypto network is possible for anyone, anytime and anywhere, without the need for central intermediaries of transactions.
- Trust: Users can trust cryptocurrency because they don't have to rely on banks, companies, financial service providers or payment partners.
- Secure: The blockchain ensures the security of the procedure and prevents attacks against a cryptocurrency.
- Transparent: As a cash book, the blockchain documents all transactions and makes the process transparent for everyone.
- Added value: Transactions and processes can be simplified and automated.
There are also decentralized apps or DApps that can run on a blockchain. Many of these applications use the Ethereum blockchain. By connecting several Smart Contracts, more complex structures and fully automated applications can arise. 🤖
This is how teenagers learn to manage their money!
NFTs Explained: What's the difference between fungible and non-fungible?
Coins and tokens of a cryptocurrency are fungible, i.e. exchangeable. This means that it doesn't matter whether you own the very first bitcoin or the very latest bitcoin in circulation. The exchange value of both digital coins is identical.
But blockchain logging also allows rare digital coins (of which there is a limited number) to be “minted”. Completely unique pieces are also possible. These are then non-fungible tokens, NFTs for short, i.e. unique coins.
The first NFTs were based on the Ethereum blockchain. Today, NFTs are best known as “virtual objects” and art projects that have created a real hype and represent a million-dollar market.
The idea is as follows: Digital things such as images, music or texts can be reproduced as desired. All copies are identical and can't be distinguished from the original. Without a signature, no one can say what came first. NFTs deliver exactly this signature: They represent a kind of certificate that identifies the owner of a virtual object. Anyone who has the NFT in their wallet can call themselves the owner and can transfer or sell the rights to others.
Developers, brands and artists who are keen to experiment have discovered NFTs for themselves and triggered a boom. NFTs can identify virtual land ownership rights in computer games and online platforms, assign usage rights to cloud services, and much more! The sales often take place as auctions and have already achieved prices in the millions in fiat money. Exchanges and exchanges for NFTs are new crypto platforms and give everyone the opportunity to create their own NFTs and put them up for sale.
What are the disadvantages and risks of cryptocurrencies?
The explosive rise in the value of coins like bitcoin has sparked a crypto boom. 💥 Strong price fluctuations have not only brought investors high profits, but also dramatic losses. Financial experts repeatedly mention the high volatility of cryptocurrency, i.e. these fluctuations, as a disadvantage or risk.
Other disadvantages and points of criticism are:
- Power Consumption: Cryptocurrency is anything but eco-friendly. The proof-of-work consensus process, in particular, requires high computing power and therefore a lot of electricity. Mining is now only profitable on powerful hardware.
- Transaction costs: Low transaction fees were initially a major benefit of cryptocurrency. The high demand and the immense number of transactions can lead to high costs, especially at peak times, and especially for blockchains with several tokens such as Ethereum.
- Speed: Cryptocurrencies can certainly have problems with scalability or speed. Although the blockchain grows regularly within minutes, the number of transactions fluctuates. A high volume can lead to “constipation”.
- Anonymity: Very few cryptocurrencies are 100% anonymous, only pseudo-anonymous. The holder of a wallet can only be identified as a number, but once that address is associated with an identity, anonymity no longer exists.
- Crime: Cryptocurrency has attracted all kinds of crime. Hackers try to crack wallets on exchanges and steal coins. Blackmailers encrypt victims' hard drives and demand cryptocurrency payments. Coins have established themselves as a means of payment for illegal offers on the Dark Web. Hackers take over all sorts of devices over the internet to abuse computing power for mining.
- Regulation: The laws and regulations surrounding cryptocurrency can vary greatly and lead to bans in some countries. Capital gains in fiat currency from crypto may be subject to tax liability.
Frequently asked questions about cryptocurrency
Having understood cryptocurrencies a bit better, let’s take a look at some of the FAQs about cryptocurrency for kids.
❓ Can I open a crypto account for my child?
Buying and selling cryptocurrencies takes place on centralized exchanges that require a Know Your Customer Check (KYC). 📝 If your child is below 18 years of age, it might be the case that you cannot open an account for them.
However, you can open an account under your identity and allow your child to experiment with crypto under your guidance.
Moreover, you can also use decentralized exchanges that don't require any KYC. To buy and sell crypto on a decentralized exchange, all your child needs is an online wallet compatible with such exchanges. Metamask is the ideal crypto wallet for a young kid to start investing in crypto.
❓ Can kids invest in cryptocurrency?
Yes, kids can invest in cryptocurrency. But, before investing, they must learn more about cryptocurrencies and the technology that they're built on, i.e., blockchain.
This will ensure a better experience while investing in cryptocurrencies. However, it’s vital for you as a parent to protect them against online risks.
❓ What does cryptocurrency mean to kids?
For kids, cryptocurrency is something that is new, exciting, and something that is being talked about by everyone, everywhere. Also, many kids believe that investing in cryptocurrency can help them get rich quickly.
❓ Is crypto better than a savings account?
Since crypto is still a new market, kids can invest for the long term. They can benefit from the growing acceptance and adoption of crypto worldwide.
However, if you prefer that your child invests in something less risky, encourage them to open a savings account. 🏦
❓ What percentage of savings should be in crypto?
The exact percentage depends on the investor's risk profile and financial objectives. Crypto is a new asset class that is considered a risky investment option, and thus, it's advised by many experts to play it safe and not to invest more than what you can afford to lose.
Cryptocurrencies and blockchain technology can potentially disrupt the way things are being done currently, and in the future, they will likely become mainstream.
Should you invest in cryptocurrencies? Our opinion
From today's perspective, almost all of the largest cryptocurrencies appear to be profitable investments: If you bought coins in the past, you'd benefit from an incredible performance today. Despite slumps and fluctuations, the price development for many cryptocurrencies indeed looks promising. 🏆 📉
In principle, cryptocurrencies are suitable as passive or active investments: Active investors follow the market closely and exchange coins in order to achieve short-term profits. With passive investing, an investor spends a one-off amount to pursue a long-term savings goal. 🔖
The high volatility, i.e. the strong price fluctuations, are both a blessing and a curse on the crypto market: They enable speculators to make enormous profit margins, but at the same time they can quickly destroy capital and cause total losses. Financial instruments similar to those on the stock market are available on stock exchanges and trading platforms, e.g. betting on price developments. Trading can be partially secured by appropriate positions, but this requires a degree of market knowledge.
For regular folk, savers and small investors, the best strategy is diversification, i.e. distributing the available capital across different coins. However, the high overall risk should never be forgotten. Therefore, our rule of thumb is: Don't invest money in cryptocurrencies that you're not willing to lose. ⚡
You can prepare your kids for the future by teaching them more about these revolutionary concepts. One of the best ways to help them learn is through online courses. At GoStudent, we offer some of the best educational courses from great tutors worldwide. Visit our website to learn more.