How to Explain Cryptocurrency to a Kid?

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Updated: Mar 28, 2022
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One of the most important lessons a parent teaches their child is about money; how to acquire it and how to save it. In a world where cryptocurrencies are gaining mainstream traction and with roughly 2.2 billion people with access to internet and mobile phones, the possibility of these digital currencies becoming an everyday thing is possible.

With this possibility, there are people who are using these currencies and potentially wondering how to explain what these digital currencies are and how they’re used to their children.

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Cryptocurrencies were birthed from the academic concept of digital cryptography, an advanced digital encryption technique, was only discussed in classrooms among academics but it shortly changed after the birth of Bitcoin in 2009.

These digital currencies don’t have governmental oversight; cryptocurrencies are monitored with a peer-to-peer system. When the digital currency is used, it creates a transaction, which then encrypted and added to a string of data, or a “hash,” which then are approved or rejected by people known as “miners.”

But explaining cryptocurrencies to children doesn’t have to be as difficult as it sounds. The Co-Founder of ARC, a cryptocurrency, Garrick Hileman offered the suggestion to compare cryptocurrency to “invisible money” such as the money in the bank. It’s there, but you just don’t see it.

For example, many people who bank online, send money orders online and purchase items from online websites such as Amazon are using a form of digital currency but not even realizing it. Using cryptocurrencies is somewhat similar. For example, there’s an online “wallet” that contains your money which you can then buy items or send money to others.

While this example can help children understand the similarities, it is also important to note the differences. One of the main differences between banking online and having a wallet filled with cryptocurrency is banking with Chase Bank, Bank of America, etc., is controlled and recognized legally by governments and can be converted to other forms of money. For example, if you were to take out 100 U.S.D and wanted to convert it to Pesos, there would be a slight conversion difference, but you could because it’s possible. Whereas using cryptocurrency, you’re not able to transfer it into Pesos, Pounds, Franks, etc., because it’s not made by any government, therefore it’s not recognized as legal.

Just like investing in stocks and gambling with legally recognized money, investing in cryptocurrency has its risks too. Cryptocurrency can be lost and stolen; cryptocurrency holders are also not susceptible to fraud. For example, in order to buy cryptocurrency, you will have to make a login with a password in a cryptocurrency wallet such as Bitcoin. But if for some reason you forgot your Bitcoin password, it’s impossible to reset your password because of the network security. Just with Bitcoin users alone, there’s an estimation that more than $3 million was lost just due to forgotten passwords— this doesn’t include other cryptocurrencies such as Ethereum, Ripple, Dash, etc.

Along with the risk of potentially losing your password and losing your cryptocurrency, there’s the possibility of the cryptocurrency market dropping. For example, in Dec. 2017, one Bitcoin traded in at $20,000 USD; however, in Dec. 2018, one Bitcoin traded in at $4,010.99.

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How to explain cryptocurrency to a kid?. (2019, Mar 30). Retrieved from