We’ve all got money on our minds as we head into the end of the financial year, but we’re thinking about one kind of currency in particular: cryptocurrency.
Specifically, how and why should we introduce the concept of cryptocurrency (or ‘crypto’, as your kids may call it) to our children? Should we invest on their behalf? Or have we already missed the boat?
Let’s dive a little deeper…
What is cryptocurrency?
For the uninitiated, cryptocurrency is any form of currency that exists digitally or virtually and uses cryptography (the art of writing or solving codes) to secure transactions.
You’ve probably heard of Bitcoin, the first and most established kind of cryptocurrency. At the time of writing it’s trading at $41,138.94AUD, so it’s kind of a big deal. There is also Ethereum, Cardano, Tether, Polkadot, Dogecoin, Stellar… we could go on.
How do you get cryptocurrency?
There are two ways to get cryptocurrency – you can either mine your own, or buy existing cryptocurrency. We know, it sounds crazy.
To mine cryptocurrency, you’d need a computer with very specialised hardware to run intensive mathematical problems. The ‘crypto’ part of cryptocurrency is for ‘cryptography’, remember?
When your computer solves one of those mathematical problems, you may score some cryptocurrency – the more money you spend on this hardware, the more likely it is that you’ll mine cryptocurrency. But like with real-life mining, as more people try their hand at it, the less cryptocurrency there will be for you. It’s a double-edged sword.
That’s why most people opt to buy cryptocurrency on trading websites. Coinspot Exchange, Swyftx and Digital Surge are among the most popular trading websites in Australia. Much like banks, these websites hold the cryptocurrency for you and make it quick and easy to buy, sell and trade. They’re as secure as they can be but, if they are hacked, your crypto could be stolen.
The other option is to store your cryptocurrency in a ‘wallet’. A ‘paper wallet’ is generally considered to be pretty safe, though challenging to establish, and provides no backup if you lose it. On the other hand, a ‘hardware wallet’ looks like a USB drive that can be connected to your computer. It’s harder to hack and steal from.
Should I buy cryptocurrency for my kids?
It seems like, nowadays, young people are establishing trade portfolios much younger than their parents did.
When cryptocurrency makes headlines daily, coins can be purchased and sold at the touch of a button and many of the websites are gamified to make finance seem more fun, it’s only natural that children would want to get involved, too.
Reputable trading websites won’t allow users who are under the age of 18 to create accounts, but it doesn’t mean that isn’t happening.
Whether they’re buying or mining cryptocurrency, it still requires real money – money that can be lost really quickly. The digital nature of this kind of investing can make it seem fake, like a video game, so it’s important to let your children know that the impacts can be very real.
Having an open dialogue with your kids is essential when it comes to cryptocurrency. It enables you to supervise they cryptocurrency portfolio, limit the amount they invest or, if you’re interested, set up an account on their behalf to give to them when they turn 18. Read this if you’re curious about buying cryptocurrency for your kids.
Remember: cryptocurrency is not something your children need to be shielded from. In fact, the more they know about it, the better. It will likely be a big part of the world they are going to live in, and the more financial literacy they have, the better.
How do I get my kids started with cryptocurrency?
There are so many ways to go about it, and every family will require a different approach. With that being said, there are a few key questions you should ask yourself…
- How will I buy cryptocurrency for my child? What account-type will I set up, and what are the tax implications?
- Where will I keep the cryptocurrency for my child?
- How stable is the cryptocurrency I’m buying?
- How much am I willing to lose?
- Who do I trust for advice?