How Teens Can Invest In Bitcoin

Bitcoin and other cryptocurrencies have captured the imagination of many teenagers eager to jump on the hot new digital asset growth opportunity. However, there is confusion around legal restrictions against underage investing before turning 18. Most major crypto platforms, including Coinbase, Paypal, and Gemini, won't let a child buy crypto until they become an adult. So, if a minor wants to invest in the crypto space, they'll need the help of a parent or guardian.

Fortunately, specialised custodial crypto services cater to this younger audience by appointing parent-controlled accounts on the child's behalf. These accounts are fully compliant with exchange terms, and parents can track balances and activity until the child turns 18.

How can a 13-year-old get a bitcoin wallet?

While there are no laws forbidding minors from investing in cryptocurrencies, many U.S.-based crypto exchanges require users to be at least 18 years old. This is due to an identity check called Know Your Customer (KYC) which is required when registering on cryptocurrency exchanges.

However, there are still ways for a 13-year-old to get a bitcoin wallet. Here are some methods:

• Decentralized exchanges (DEX): These are crypto-asset trading applications that use smart contracts instead of a centralized trading system. DEXs do not store user funds or control transactions. Instead, funds are transferred directly from the user's wallet, and there is no user verification procedure.
• Peer-to-peer (P2P) exchanges: Crypto investors can transact directly with each other without a centralized third party. P2P trading platforms have much freer requirements than traditional bitcoin exchanges.
• Bitcoin ATMs: These are similar to regular cash ATMs but allow you to buy or sell Bitcoins using cash. There are one-way and two-way ATMs. The former only lets you buy crypto, while the latter enables you to buy and sell. Most ATMs only accept cash, but some take cards.
• Part-time jobs in IT and crypto: These fields often pay well and may even pay in cryptocurrency.
• Gift cards: Cryptocurrency gift cards are digital and can be sent anywhere in the world.

It is important to note that some of these methods may be risky and could lead to financial loss. Therefore, it is recommended that minors involve their parents or guardians when investing in cryptocurrencies.

What are the risks of bitcoin for children?

Bitcoin and other cryptocurrencies are a relatively new concept, and technological advancements mean that they will likely play a role in your child's future financial life. However, there are several risks associated with investing in Bitcoin that children and teenagers should be aware of.

Firstly, the crypto sector is largely unregulated, and the value of each cryptocurrency is derived solely from the willingness of people to purchase and use it. This means that if people lose interest or stop using a particular cryptocurrency, its value can decline sharply, resulting in significant losses for investors. Unlike traditional finance, there are no banks or legal obligations to inform investors about the risks involved, so it's a "free-for-all" market.

Secondly, cryptocurrencies are subject to extreme price volatility, with values fluctuating wildly over time. For example, the value of Bitcoin dropped by about 70% between November 2021 and September 2022. These ups and downs can be good or bad, but if the value decreases, there is no way to recover the lost funds except by waiting and hoping for an increase.

Thirdly, the irreversibility and speed of transactions in the crypto market mean that investors are very much on their own when buying and selling. There is no way to change your mind or cancel a transaction once it has been made, and the fast-paced nature of the market can lead to hasty decisions.

Additionally, cryptocurrencies are a relatively new phenomenon, which often gives them a higher fail rate. Your child could invest in a promising crypto token, but if the company behind it runs out of money and goes bust, the token becomes worthless.

Lastly, it's important to be aware of the potential for scams and fraud in the crypto space. Organised crime gangs target young people via social media platforms, asking them to move or accept money from cryptocurrency exchanges with the promise of payment in cryptocurrencies. Getting involved in these schemes can have serious consequences for a young person's financial record and future opportunities.

How can parents buy bitcoin for their 13-year-old?

In most cases, a 13-year-old cannot buy Bitcoin or other cryptocurrencies themselves. In the US, all reputable exchanges require users to be at least 18 years old, in compliance with "Know Your Customer" (KYC) laws. These are SEC-enforced regulatory guardrails against fraud and money laundering.

However, parents can help their children buy Bitcoin by setting up a custodial account or a joint account. In a custodial account, the child owns the assets, but the account is managed by the parent. A common type of custodial account is the UGMA (Uniform Gifts to Minors Act) account. Alternatively, a parent can open a joint brokerage account with their child. In this case, the minor would be on the account title jointly with the parent, and both would have equal rights over investment decisions.

• Decide on the type of investment account: Choose between a custodial account, a joint account, or another type of account that allows the child to earn crypto without direct purchase.
• Research the exchange: Always vet any crypto exchange before creating an account. Look for independent reviews, confirm how long they have been in business, check for two-factor authentication, and review security insurance safeguards. Reputable exchanges include Coinbase, Gemini, and Kraken.
• Submit an application: Provide basic identification information about the child and yourself. You will also need to fund the account with fiat currencies, such as US dollars or euros.
• Choose a crypto wallet: Decide if you want your child's crypto to be stored in a cold wallet, hot wallet, or both. A cold wallet is offline and more secure, while a hot wallet is online and more convenient.
• Make the purchase: Once the account is set up and funded, parents can purchase Bitcoin or other cryptocurrencies on behalf of their child.
• Monitor and manage: With a custodial account, parents can track balances and activity until the child turns 18, at which point the child assumes full account authority.

It is important to note that investing in cryptocurrencies carries risks, and the value of these assets can be highly volatile. Therefore, parents should carefully consider these risks before investing on behalf of their children.

What are the best bitcoin apps for kids?

While there is no minimum age requirement to own cryptocurrency, most major crypto platforms won't allow minors to buy crypto until they become adults. However, there are some apps that allow kids to earn crypto. Here are some of the best bitcoin apps for kids:

The Bitcoin Alphabet

The Bitcoin Alphabet – for Kids and Everyone Else is an iPad app that explains the basics of bitcoin and other cryptocurrencies through a combination of illustrations and text. The app covers topics such as "Alternative Currency" and "Zero-Confirmation Transaction" in plain English, making it accessible to both children and parents. It was created by Chris Bozak, who believes that cryptocurrency is a "wonderfully inevitable rabbit hole" that will force the world to re-learn everything about money. The app is available on the iPad's App Store for £1.99, or the equivalent of 0.01 bitcoins.

Piggycoin

Piggycoin is a cryptocurrency created by software engineer João Valente, who describes it as the "bitcoin for kids". It is an educational online game that allows children to earn coins by completing tasks. The coins are stored in digital wallets, and once children have enough, they can spend them at the piggycoin shop. Valente believes that using the familiar concept of a piggy bank will help teach children about cryptocurrencies in a fun and engaging way.

EarlyBird

EarlyBird is a custodial account app that allows parents or guardians to invest in cryptocurrency on behalf of minors. The app offers a crypto wallet for Ethereum and Bitcoin through a partnership with Gemini, one of the world's largest and most secure crypto exchanges. EarlyBird also provides managed and auto-rebalanced portfolios based on the child's age, investment goals, and risk tolerance. The app costs $2.95 per month for one child or $4.95 per month for multiple children.

Step

The Step app offers a unique "hybrid" secured credit card specifically designed for kids and teens. It combines the safety features of a debit card with the functionality of a Visa credit card, allowing children to build their credit history. Parents can add money to the FDIC-insured account and control how their children spend it. The app also includes an "invest" function that allows children aged 13 and older to buy and sell Bitcoin for a small transaction fee. Additionally, children can earn Bitcoin or cash rewards by opting into offers from various companies. The Step app is free to use and also provides a great savings tool, offering 5% annual interest on savings up to $250,000.

How can a 13-year-old learn about blockchain?

In most places, a 13-year-old cannot buy financial assets on their own. However, if you are a 13-year-old who wants to learn about blockchain, there are several ways to do so.

Firstly, it is important to understand the basics of blockchain technology and how it works. Blockchain is a decentralised network of computers, or nodes, that keeps a record of all transactions made using a specific digital currency, such as Bitcoin. This network of computers all contains the same history of transactions, so there is no need for a central authority like a bank. Each transaction is validated by everyone in the network and added to the shared history. This makes blockchain very secure, as to tamper with the record of transactions, you would need to change the records on all the computers in the network at the same time, which is almost impossible.

You can think of blockchain as a way to trade with people around the world without needing an intermediary like a bank. For example, if you wanted to sell your smartphone, you could use a platform like eBay, which acts as an intermediary, and a bank to process the payment. With blockchain, you could sell your phone directly to the buyer without involving any other companies.

To learn more about blockchain, you can read articles and explanations online, such as introductory guides aimed at beginners or younger audiences. You could also explore different types of cryptocurrencies, as blockchain is the platform that makes these possible. Bitcoin, for example, is a digital currency created using blockchain technology. You can learn about the history of Bitcoin and how it has become the most popular and highest-valued cryptocurrency globally.

Additionally, you can investigate the various applications of blockchain beyond cryptocurrencies. For instance, Ethereum is a blockchain that allows developers to create decentralised applications, which are open-source software that no single person controls. You can also look into non-fungible tokens (NFTs), gaming, and smart contracts, which are all built on blockchain technology.

By reading about blockchain and its applications, as well as seeking out explanations and tutorials, a 13-year-old can gain a strong understanding of this technology and its potential.

Frequently asked questions