Exploring Crypto's Age Limit: A Guide For Young Investors

There is no age limit to own cryptocurrency, but many crypto exchanges enforce a minimum age of 18 for customers. This is because, in most countries, a person is considered mature and able to take full responsibility for certain aspects of life, such as finances, once they reach the age of 18. As a result, traditional economic systems and financial business laws worldwide prohibit minors from opening bank accounts or holding bank cards. Coinbase, Kraken, and Paypal are some of the popular crypto platforms that require users to be at least 18.

Crypto for kids: what are the risks?

The Risks of Cryptocurrency for Children

The world of cryptocurrency is a risky one for investors of any age, but children are particularly vulnerable to its dangers. While it's important to teach children about this new technology and how it works, parents should be aware of the potential pitfalls.

Firstly, it's important to note that while there are no laws preventing minors from investing in cryptocurrencies, most major crypto exchanges, such as Coinbase and Binance.US, require users to be 18 or older. This is due to the risky nature of the investment. So, while it is possible for parents to buy and hold cryptocurrencies for their children, it is not a decision to be taken lightly.

Volatility and Loss

The price of cryptocurrencies is extremely volatile, and losses can be heavy and swift. It's important that children understand that they could lose some or all of their investment. This is a key part of financial literacy: understanding the difference between needs and wants, and knowing that investing is not the same as saving.

Scams and Fraud

The anonymous and decentralised nature of blockchain technology means that scams and fraud are common. Children are particularly vulnerable to these scams, and may be more likely to lose access to their private keys.

Regulatory Uncertainty

The future of cryptocurrency is uncertain. Some governments may choose to ban or heavily regulate cryptocurrencies, which could significantly affect the value of any investment.

Data and Identity

The anonymous nature of blockchain technology can also be a risk to personal data and identity. Information recorded on the blockchain is permanent and immutable, and this could conflict with data protection regulations. Children may not understand the consequences of sharing their data, and it could be difficult to delete.

Alternative Options

There are other, less risky, investments that can provide diversification without the risks of crypto. These include real estate investment trusts (REITs), precious metals, and collectibles.

Safeguarding Children

While crypto and blockchain can be a force for good, it is important to have safeguards in place to protect children. UNICEF has recognised the challenges and is exploring blockchain solutions through its venture fund. Melvin Breton Guerrero, a policy specialist for UNICEF, has emphasised the need for age verification and education to prevent harm to minors.

Educating Children

It is important to teach children about the risks of cryptocurrency, as well as the potential benefits. Parents can set up children's crypto wallets and give them digital allowances to help them learn about the technology and its uses. However, it is crucial that children understand the risks involved and that they do not invest more than they are willing to lose.

Age restrictions on popular platforms

While there are technically no age restrictions for trading or mining cryptocurrencies, most crypto platforms impose a minimum age restriction. For example, Coinbase and Paypal require users to be at least 18 years old.

Before July 2017, Coinbase allowed users who were at least 13 years old to open an account and use its services with parental consent. However, since July 25, 2017, Coinbase has changed its rules to require all users to be 18 or older.

Other platforms that require users to be at least 18 years old include Binance.US and EarlyBird.

There are some alternatives for those under 18 who want to invest in cryptocurrencies. For example, Purse.io has an age restriction of 13+, and there are also peer-to-peer platforms such as LocalBitcoins, Paxful, and Bisq that may have less stringent age verification processes. Additionally, Bitcoin ATMs typically do not require extensive age verification.

Compliance with KYC requirements

While there are no laws prohibiting minors from investing in cryptocurrencies, there are some challenges and risks involved. Most crypto platforms, like Coinbase and Paypal, require users to be at least 18 years old to comply with KYC (Know Your Customer) requirements. These regulations are in place to prevent identity theft, fraud, and money laundering, and they require crypto exchanges to collect and verify key data about their customers. This typically includes identity data such as a driver's license, SSN, and other financial statements. While some exchanges may allow trading before verification, full compliance with KYC requirements is necessary to avoid penalties and negative media attention.

To comply with KYC requirements, crypto exchanges must collect basic identifying information such as social security numbers during customer onboarding. This data is then verified by cross-referencing it with official documents like driving licenses, passports, and birth certificates, as well as screening it against official lists and registries. This process helps establish a customer risk rating, which informs the level of AML/CFT compliance response needed. A higher-risk customer, such as a politician or government official, will require more intensive compliance measures, including enhanced due diligence and negative news searches. Ongoing risk reviews are also necessary to keep up with any changes to a customer's risk profile.

By implementing robust KYC measures, crypto exchanges can benefit from improved customer transparency and trust, as well as enhanced stability in the crypto market. Additionally, the potential for money laundering and other scams is reduced. However, the anonymous and decentralised nature of cryptocurrencies can make KYC compliance challenging. To address this, exchanges should incorporate digital controls, such as obtaining biometric customer information (face, voice, and fingerprint scans), and ensure that their AML/CFT checks are completed before funds are transferred.

While some users may prefer to avoid KYC requirements by using no-KYC exchanges or peer-to-peer trading, these options are considered illegal in some countries. As global regulators increase their scrutiny of cryptocurrency transactions, it is crucial for crypto exchanges to address their AML/CFT compliance responsibilities and implement effective KYC processes.

Restrictions and eligibility criteria

There are no age restrictions on owning cryptocurrency as it is a decentralised digital currency. However, there are age restrictions when buying crypto through an exchange or broker. Most popular crypto exchanges, such as Coinbase, Paypal and Kraken, enforce a minimum age of 18 for customers. This is because, in most jurisdictions, the age of 18 is considered the age of majority, at which people can engage in a legally binding contract. This age restriction also parallels the age restrictions for bank accounts, which are the primary way to fund crypto purchases.

In most countries, a person is considered mature and able to take full responsibility for certain aspects of life, such as finances, upon reaching the age of 18 or 21. Therefore, traditional economic systems and financial business laws worldwide prohibit minors from opening bank accounts or holding bank cards.

Regulated platforms use Know-Your-Customer (KYC) protocols to ensure users are at least 18 or 21 years old before allowing them to create an account and start trading. These platforms also require identity verification through government-issued identification documents and selfies, making it difficult for minors to create accounts.

Minors can legally own and use cryptocurrency and can download a custodyless wallet app to store their coins safely. They can also freely manage their cryptocurrency using the wallet or exchange it for other currencies using the exchange feature. However, they need help from adults to buy cryptocurrencies directly with fiat currency.

There are some alternative options for minors to invest in cryptocurrencies. For example, Cash App supports Sponsor Accounts, which allow minors as young as 13 to buy or receive Bitcoin with limits set by a parent or guardian. Another option is to use a decentralised exchange, which is currently unregulated and has no age limits. However, these exchanges are highly risky, and there is no way to exchange fiat currency for crypto.

Alternative options for younger individuals

While there are no age restrictions for trading or mining cryptocurrencies, crypto platforms like Coinbase and Paypal impose a minimum age restriction of 18. This means that younger individuals cannot directly invest in cryptocurrencies. However, there are alternative options for them to explore:

Parental Assistance

One of the easiest ways for minors to buy crypto is with the help of their parents or guardians. Adults can create an account with a crypto exchange, purchase crypto with their bank account, and then transfer it to the teenager's external wallet. This method allows minors to acquire cryptocurrencies without directly violating any laws or regulations.

Friends or Relatives Over 18

Similar to the above method, asking someone over the age of 18 to buy and transfer crypto on their behalf is another option. This can be done through a cash transaction, where the minor exchanges cash for crypto, which is then transferred to their self-custody crypto wallet.

Crypto Debit Cards

Some platforms allow the purchase of crypto without Know Your Customer (KYC) requirements. These platforms may enable minors to use funds from a bank account or credit card to acquire crypto. However, obtaining a credit/debit card as a minor can be challenging, and some banks may restrict crypto purchases.

Trade Goods or Services for Crypto

Minors can start a physical or online business that accepts payment in crypto. They can provide goods or services and receive crypto as payment, which they can then store in a wallet. Once they turn 18, they can choose to cash out their crypto holdings.

Airdrops, Bounties, and Rewards Programs

Some blockchain projects distribute airdrops and bounties to those holding their coins to increase awareness of their project. Minors can acquire small amounts of crypto through these methods, especially if they already hold some crypto using the above-mentioned ways. Additionally, they can participate in crypto rewards programs, which often involve promoting blockchain projects through content creation, sharing referral links, or joining Telegram groups.

Gift Cards

P2P platforms offer multiple payment methods, including prepaid cards and gift cards such as Amazon gift cards, which can be converted into crypto. This method allows minors to indirectly purchase crypto without directly linking their bank accounts or cards.

Custodial Accounts

Custodial accounts are adult-managed investment accounts where a parent or guardian opens an account on behalf of a minor. While the assets legally belong to the child, the adult has control over the account. This option allows parents to invest in cryptocurrencies for their children without the child directly trading or investing.

It is important to note that while these methods provide alternatives for younger individuals to acquire cryptocurrencies, they should still exercise caution and educate themselves about the risks associated with crypto investments, such as volatility and regulatory uncertainty.

Frequently asked questions