Cryptocurrency is a type of digital asset that has become a popular investment opportunity in recent years. The cryptocurrency system relies on blockchain technology to transfer cryptocurrency between investors and record transactions. Although the term contains the word “currency”, cryptocurrencies function more like other investments than an actual currency. Cryptocurrencies, unlike the US dollar or euro, are not legal tender and are not widely accepted.
According to a March 2022 NBC News Poll report on CNBC, more than one in five Americans have traded cryptocurrency. However, cryptocurrencies can be difficult to understand and there are risks to consider. If you are a teenager or parent of a child, learn the basics of what cryptocurrency is, investing in cryptocurrency, the risks of cryptocurrency, and more. What is cryptocurrency? Cryptocurrency is a virtual currency whose value is secured through cryptography and transactions are recorded through blockchain technology. Cryptocurrency dates back to 2009 with the creation of bitcoin. And while bitcoin remains the most popular cryptocurrency in terms of market capitalization (how much bitcoin in existence has value), as of July 2022, there were over 20,000 cryptocurrencies on the market, according to CoinMarketCap.
A defining characteristic of cryptocurrency is its decentralized nature. The system is not run by the traditional gatekeepers of the financial industry, such as large banks or brokerage firms. It is also not regulated by the government like physical currencies and securities like stocks and bonds. This decentralization is part of what makes cryptocurrency attractive to some investors, but also part of what makes it risky. Many cryptocurrencies are created through a process called mining, which uses powerful computer processes to create and verify additional blocks of coins. Miners receive rewards for their efforts. Once mined and the newly created cryptocurrency becomes available, individual investors can buy and sell cryptocurrencies on cryptocurrency exchanges, similar to markets.
The process of investing in cryptocurrency is similar to investing in any other security, such as stocks or bonds. Generally, you buy a particular currency in the hope that its value will increase in the future. Cryptocurrencies are most commonly bought and sold through centralized cryptocurrency exchanges. Some cryptocurrency trading platforms allow you to exchange your “fiat currency,” such as US dollars, for cryptocurrency. Some may also allow you to exchange one cryptocurrency for another. For example, if you already own Bitcoin, you can use it to buy Ethereum, another cryptocurrency.
To buy cryptocurrency, you need a cryptocurrency wallet. Wallets store information that allows you to access your cryptocurrencies. You also need your wallet to trade cryptocurrencies. Can teenagers invest in cryptocurrency? There is no legal minimum age to own cryptocurrency, meaning teens can technically start investing at any age. That said, most popular cryptocurrency exchanges, such as traditional brokerage firms, prevent anyone under the age of 18 from opening a trading account. Although this makes it more difficult for teens to invest in cryptocurrency but it does not make it illegal.” “There are other ways for teens to participate, such as peer-to-peer purchases or through decentralized exchanges, with no KYC requirements.”
KYC – or Know Your Customer – requirements state that financial institutions must have written policies to help them verify customers’ identities, risk profiles, and more. In addition to loopholes that allow teens to legally invest in cryptocurrency, there are also ways for parents to buy cryptocurrency on behalf of their children. A custodial account is a brokerage account that an adult opens in the name of a minor. The adult who opens the account, called the custodian, can buy and sell financial assets. These assets will then be transferred to the minor when he or she reaches adulthood. Investment startup Onu offers crypto deposit accounts, but not many other providers offer deposit accounts for crypto investing. Deposit accounts that hold assets such as stocks are much more common. One way to gain exposure to cryptocurrencies through a regular deposit account is to invest in stocks of companies with significant cryptocurrency operations, such as cryptocurrency exchanges, mining companies electronics or cryptocurrency mining hardware manufacturing company.