Crypto for Teenagers [and Kids]

(How to Invest in Crypto Under 18)

Bitcoin, Ethereum, and other cryptocurrencies are all the rage these days, even though they can be risky investments. Teen investors are particularly interested in crypto because it is innovative and radically different from how their parents use and invest money.

Whereas older generations saw the stock market as a tried-and-true financial venture, many teens view it as “old school,” and want to invest in assets that, in their minds, are the wave of the future and a more suitable medium of exchange.

Furthermore, unlike prior generations, today’s teens no longer see the need for physical cash, and, considering the convenience of Apple Pay, Venmo, and other electronic payment systems, it’s clear that digital currencies closely align with how modern teenagers operate and view the world.

So, if you are curious to learn more, keep reading! In this article, we will explain:

  • the basics of cryptocurrencies;

  • the blockchain (the platform for investing in cryptocurrencies);

  • various types of cryptocurrencies (mainly discussing the major options, such as Bitcoin and Ethereum);

  • how to get started investing through cryptocurrency exchanges;

  • Crypto exchange-traded funds; and

  • the risks and benefits of investing in cryptocurrencies

Remember, though, if you are under 18, you cannot buy financial assets on your own; adults (typically your parents) have to establish custodial accounts for you. They can manage the purchasing of the assets on your behalf, but you generally won't gain control over the assets until you are over 18 years old. 

What is Cryptocurrency?

In the most basic of terms, a cryptocurrency is a digital representation of value used to buy and sell goods and services and can also be used as an investment. Unlike centralized currencies (like the US dollar), crypto has the potential to appreciate dramatically, depending on the market. Like any other currency, the value of cryptocurrencies regularly fluctuates.

Cryptocurrencies can be used like money in some cases, but they do not yet have legal tender status in the United States. Although some websites may accept the payment option, the federal government does not recognize crypto as a valid or acceptable form of monetary value. For example, if you owe taxes to the IRS, you cannot use cryptocurrency to pay the debt.

This may eventually change, though, as several nations around the world, such as El Salvador and the Central African Republic, have already voted to accept crypto as a form of legal tender. Nevertheless, Americans can still purchase and hold cryptocurrencies through the blockchain, allowing teens and adults alike to invest in the growing market. 

How Do Cryptocurrencies Work and What is the Blockchain?

Although the concept of a digital currency may be confusing or even intimidating initially, the underlying technology is quite simple. Cryptocurrencies are built on a decentralized network of computers, called a blockchain, that keeps track of all the transactions made using the currency.

This system is similar to how a bank might keep track of money that flows in and out of its accounts. The main difference, though, is that since cryptocurrencies are decentralized, there is no one entity (like a bank) that has control over the network. Instead, the blockchain is maintained by a network of blocks that contain information and create a network for secure person-to-person transactions.

Therefore, to tamper with the recording of transactions on the blockchain, one would have to change all the records in the distributed computers simultaneously, which is a nearly impossible task. This makes the transactions on the blockchain extremely secure. 

Blockchain technology was first established in 1991 but it wasn’t until 2009 that Satoshi Nakamoto put it into action to create the first cryptocurrency—Bitcoin. In exchange for their work, individuals who “mined” data through the blockchain would be rewarded a small amount of the currency, understanding that the total amount was limited (to only 21 million bitcoins) and would someday run out. About 19.14 million bitcoins have been mined as of September 2022.

What is a Bitcoin? A Simple Explanation for Teens (and Kids)

Bitcoin is a cryptocurrency created in 2009 by Satoshi Nakamoto. It follows the ideas set out in a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto, whose true identity has yet to be verified. According to his original statements, “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

To that end, Bitcoin was designed to offer lower transaction fees without the restrictions imposed by a centralized authority (bank). Yet, unlike other forms of currency, there are no physical Bitcoins. Instead, balances are kept in a public ledger within the Bitcoin blockchain, which anyone can access and verify.

Boy on a Portable Trading Bitcoin

Boy on a Portable Trading Bitcoin

And although Bitcoin is not considered legal tender in the US, it's the most popular crypto option. Since 2009, it has ushered in a massive influx of other cryptocurrencies, which today are referred to as altcoins. Nevertheless, it is still the most successful and highest-valued cryptocurrency in globally, reaching new records in March 2024, when a single Bitcoin was valued at over $75,000.  

Ethereum and the Blockchain

Now that you understand the blockchain and cryptocurrencies, let’s take a look at Ethereum. Ethereum is a programmable blockchain that allows developers to build and deploy decentralized applications. Decentralized applications or “dApps” are open-source software that no one person controls.

Ethereum’s smart contracts are based on different computer programming languages, which developers use to program their own decentralized applications. Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code.

Ethereum also provides a cryptocurrency token called "Ether", which can be transferred between accounts and used to compensate participants for any computations they performed. Today, Ether is the second most valuable and popular cryptocurrency after Bitcoin.  

Crypto Wallets – Hot and Cold

Now that we’ve explained how the blockchain and Ethereum work, it’s time to talk about wallets. A cryptocurrency wallet is a digital wallet that stores your public and private keys and interacts with different blockchains so you can view your balance, send transactions, and more.

There are two types of wallets:

  • Hot Wallets: Hot wallets are online wallets connected to the internet, making them more convenient to use but also more vulnerable to hacks. The most popular hot wallet is associated with the Coinbase crypto exchange, which allows you to buy, sell, and store cryptocurrencies on their platform (if you choose).

  • Cold Wallets: Cold wallets are offline wallets that are not connected to the internet, making them less convenient to use and more secure. The most popular cold wallet is the Ledger Nano S, a hardware wallet that stores your private keys offline. A cold wallet can also be private and public keys written down on paper. More on cold wallets later.

Regardless of which wallet type you choose, the blockchain is incredibly hard to hack, making it one of the safest investment options. Outside of limited government-backed attacks, cryptocurrencies have never been stolen by a hacker.

Varieties of Cryptocurrencies

Although Bitcoin and Ethereum are two of the largest and most popular cryptocurrencies, dozens of smaller, lesser-known options are available through exchanges worldwide. For example, a very popular blockchain that houses so-called meme coins like Dogecoin is Solana. Solana is a blockchain platform aiming to be faster and more scalable than other blockchain networks like Ethereum. The website, Coinmarketcap.com has a list of the top currencies by a measure called market value, which is the value of a coin times the number of coins outstanding in the marketplace. Below, you’ll find a list of some of the largest and most popular cryptos, their currency symbols, and a brief description of each one:

  • Bitcoin (BTC-USD): As mentioned above, Bitcoin was first launched in 2009 and has grown to become the most valuable cryptocurrency in the world.

  • Ether (ETH-USD): After Bitcoin, Ether, or the cryptocurrency offered through the Ethereum blockchain, is the second most valuable cryptocurrency, which launched in 2015.

  • Solana (SOL-USD): Launched in 2020, Solana uses a unique set of technologies to process transactions quickly and cheaply. This makes it attractive for developers building decentralized applications (dApps) and other digital tools on the blockchain.

  • Tether (USDT-USD): Tether is a cryptocurrency pegged to the US dollar, meaning its value is always equal to $1. This makes it a safe option for first-time investors but it’s not a wise long-term investment since it only grows with the USD. These currencies pegged to the dollar are sometimes called “stablecoins”.

  • Binance Coin (BNB-USD): Binance Coin was originally marketed as a high-performing cryptocurrency for advanced traders. Since it was first launched in 2017, it’s grown by nearly 6,000%, placing it within the top crypto options.

  • Cardano (ADA-USD): Although smaller than the other options on this list, Cardano is still within the top 10 largest cryptocurrencies in the world with a market cap of over $15 billion. It was originally designed to be used by governments and financial institutions, adding legitimacy to the brand.

  • Dogecoin (DOGE-USD): Dogecoin is an open-source meme cryptocurrency that Jackson Palmer and Billy Markus created as a joke in 2013. Despite its humble beginnings, it has since grown to have a market capitalization of over $8.4 billion.

 Along with these top options, there is an overabundance of altcoins, such as XRP, USD Coin, Polkadot, Uniswap, and more. As a teen investor, however, you should probably stick to the top 3 coins on the list above in order to stay out of harm’s way as much as possible when it comes to crypto investing. 

The Risks of Investing in Cryptocurrency

Cryptocurrency is just like any other investment. Whether the investment is stock or cryptocurrency, kids and teenagers should be cautious about where they put their money. A young investor should even be more cautious when it comes to crypto because of how wildly its value can swing.

Although it is probably the most well-known option, Bitcoin (symbol: BTC) is extremely volatile. For example, the value of Bitcoin was $68,000 in November 2021. By September 2022, its value declined to about $20,000—about a 70% loss of value. Bitcoin has since rebounded to about $67,000 in May 2024.

The biggest issue that caused big swings in Bitcoin is that there have been several instances where leading crypto platforms and investors, such as FTX, Voyager Digital, Celsius, and Three-Arrows Capital filed for bankruptcy, with some of the founders landing in federal prison. These companies left millions of customers stranded without access or hope of ever seeing their crypto deposits again. (This is another reason why cold wallets are the best choice for investors if they have a considerable amount in digital assets).

So, while crypto investing may seem rebellious and exciting, it’s more of a gamble at this point unless you know what you’re doing and you have money you can lose without putting yourself in financial jeopardy. 

How Much Teens Should Invest in Crypto?

Chances are that you don’t have much money to invest, so the current size of your savings can probably answer this question. Nevertheless, if you want to get your foot into the crypto world, you may consider just buying a tiny fraction of Bitcoin or Ethereum – an investment in the order of no more than $300-$500 if you have it.  

How to Buy and Sell Crypto Through a Cryptocurrency Exchange

If you’re interested in investing directly in cryptocurrency, it is easiest to go through a cryptocurrency exchange. These exchanges act as middlemen between buyers and sellers and usually charge a small fee for each transaction. The most popular and perhaps the safest exchange for US investors is Coinbase. But there are many other exchanges like Crypto.com, Gemini, and Kraken. However, none of these services accept members under the age of 18. And they don’t offer custodial accounts, so parents can buy crypto for their kids through them. You can find a complete list of the top crypto exchanges on the Coinmarketcap.com website.

We will assume that your parents will buy the crypto since you can’t do it on your own.

Once they’ve selected a crypto exchange, they will need to create an account and deposit money into it. After that, they can start buying crypto directly from a vendor.

When buying through these exchanges, it’s best to use a cold wallet to store the information they would need to transact with the crypto – namely the public and private keys. We recommend they choose a crypto hardware wallet for the purchase, which is the safest way to secure cryptos so no one can hack it and steal it. If the amount you are investing in crypto is small, it’s probably fine to leave your digital assets on the exchange in a hot wallet.

With a hardware wallet (cold wallet), your parents can easily transfer the cryptocurrency directly to you when you are no longer a minor. In the meantime, you can buy and sell more crypto with their permission and supervision using the established hardware wallet.

When selling crypto, you can do so (under parental supervision) through the same exchange used to buy the crypto or, if you’d prefer, find an exchange with better rates. Once you’ve found a buyer and agreed on a price, you’ll need to send the crypto to the buyer’s digital wallet and, once they’ve accepted it, the funds will be deposited into your account.

It’s important to emphasize that if your parent purchases crypto through a crypto exchange and then stores it on a cold wallet, they don’t ever have to interact with that exchange again if they choose not to do so. The cold wallet carries all the information necessary to buy or sell cryptocurrency at any platform that handles the blockchain associated with the purchased crypto. 

Your Crypto Investments Through Exchanges are Not Protected

It is essential to note the difference between investing in stocks and crypto from a regulatory point of view. If you invest in stocks and the online broker you use goes bankrupt, your investment is protected by the Securities Investor Protection Corporation (SIPC) for up to $500,000. It does not cover the stock investor from making a bad investment. According to the SIPC’s website:

“SIPC does not protect against the decline in value of your securities. SIPC does not protect individuals who are sold worthless stocks and other securities. SIPC does not protect against losses due to a broker's bad investment advice, or for recommending inappropriate investments.”

Cryptocurrency purchased through exchanges such as Coinbase, on the other hand, is not protected by any of the regulatory bodies such as the SIPC or the Federal Deposit Insurance Corporation (FDIC) which covers bank deposits.

To protect yourself, you should always find out whether SIPC or FDIC covers your investment on any platform you choose.

Crypto Exchange-Traded Funds for Teens

While investors can buy crypto through an exchange like Coinbase, it is much easier to buy crypto exchange traded funds (ETFs). Crypto ETFs were just approved by the US Securities and Exchange Commission (SEC) in 2024. The beauty of these ETFs is that they trade just like stocks.

And you don’t have to worry about hot wallets, cold wallets, and the security of the trading platforms because there are strong regulations around the companies that offer these ETFs. What’s even better, as we explain further in another section, your crypto ETFs are protected by the SIPC since they are treated just like stocks. Once again, this protection is only if the platform goes bankrupt, not for making bad investment decisions.

Here is a list of some of the prominent crypto ETFs you can explore:

  • Grayscale Bitcoin Trust ETF (GBTC) – the is the first and, by far, the largest Bitcoin ETF

  • iShares Bitcoin Trust (IBIT)

  • Bitwise Bitcoin ETF (BITB)

  • ARK 21Shares Bitcoin ETF (ARKB)

For more information about crypto ETFs, see our article here.

How Teens Can Invest in Crypto Through Crypto-Related Stocks

As a teen investor, you may not want to invest directly in cryptocurrency because of the risks of the assets. However, you can indirectly invest in crypto by investing in individual companies (as opposed to an amalgamation of companies in an ETF) related to blockchain technology or directly to cryptocurrency.

For example, Coinbase Global Inc. (stock symbol: COIN) is one of the biggest crypto exchanges so its value would be indirectly tied to the crypto market (although not to any particular coin). Nerdwallet provides a list of crypto-related companies in an article titled 9 Crypto Stocks for 2024.

Crypto-related stocks can be purchased through custodial accounts set up by your parents (or other adults) with you as the beneficiary. 

The Future of Cryptocurrency

Although cryptocurrency is still in its infancy, its potential for growth is undeniable. In the past decade, we’ve seen crypto grow from a niche interest to a booming industry with a global reach. And, as more and more businesses begin to accept crypto as a form of payment, we can expect its use to become more widespread. Finally, we expect the uses of blockchain technology to expand the use of cryptocurrency, especially through the use of smart contracts, gaming, NFTs, etc.