How to explain cryptocurrency to a kid

May 02, 2019
OpenLedger DEX

kids and cryptocurrency

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 the internet and mobile phones, the possibilities of the digital currencies are nearly limitless. With this in mind, let’s see how to better explain these ubiquitous cryptocurrencies to your kid.

Digital money is here

Explaining cryptocurrencies to children doesn’t have to be as difficult as it sounds. Cryptocurrency can be compared to “invisible money,” such as the money in the bank. It’s there, but you just don’t see it.

For example, many people using online banking send money orders online and purchase items from online websites, such as Amazon, thus using a form of digital currency without even realizing it. Using cryptocurrencies is somewhat similar — there’s an online “wallet” that contains your money which you can then use to buy items or send money to others.

Another example of this would be when you use a credit or debit card when making a purchase from a store. You pay for the cost of something with a small plastic card. There is definitely a financial transaction happening, but the only part we see is the swipe of the card through the reader — the rest is digital.

What is cryptocurrency?

Cryptocurrencies were born from the digital cryptography, an advanced digital encryption technique, which was initially only discussed in classrooms among academics. That shortly changed after the birth of bitcoin in 2008. Same as paper money is created with the help of a printing machine and a unique sequence number for each banknote registered by the government, cryptocurrency is created with the help of the code, but it stays digital and doesn’t require printing unlike typical currencies.

Now cryptocurrencies are involved in different aspects of our lives. They’re accepted as payments for various goods and services — from something simple (for instance, coffee) to something more comprehensive (like taxes, for example).

What’s the difference between fiat and crypto?

Fiat and crypto are two different types of currencies.

Cryptocurrencies are the types of digital money created with the help of cryptography, or the science of safely encoding information to protect it from being stolen or damaged. Whatever you do with them gets recorded to a decentralized ledger — a sort of a digital accounting book that everyone can see. It means cryptocurrencies don’t have a single central authority from a country’s government.

how to spend crypto

Fiat money, on the contrary, is issued by the government, and is controlled by the government, too. Fiat money can be compared to those $20 your kid gets for a school lunch — this money can be physically counted, and exchanged for their favorite soft drink, or even a game ticket. Cryptocurrencies are the same, they just can’t be held in their hands — at least, not in the regular situation.

How to get crypto?

When digital currency is used, it creates a transaction (same as exchanging fiat money to a game ticket, or a soft drink). Then this transaction gets encrypted and added to a string of data, which then is either approved or rejected by people known as miners, or delegated users, who get paid for their confirmation activities.

So, if you’d like to get cryptocurrency for yourself, you can either become a miner/delegated user, or you could also buy cryptocurrency or acquire it through other means — for example, through your employer.

How it can be spent?

Surprisingly, this is the easiest one of all. Nowadays, cryptocurrency is becoming more and more mainstream, and can be spent literally on everything, from real estate and education to food, travel, clothes, furniture… Even taxes, with Ohio recently becoming the first U.S. state to accept cryptocurrencies for tax payments.

Piece of advice

What parenting is if not a piece of mind passed from generations to generations? If you would like to go further and explain the potential risks associated with cryptocurrency to your kid, it’s worth reminding to be careful about your personal data.  

Cryptocurrency can be lost if you forget your wallet password, or stolen if your wallet is hacked. Only with bitcoin users alone, there’s an estimation that more than $4 million has been lost just because of the forgotten passwords — and this number doesn’t include other cryptocurrencies, such as Ethereum, Ripple, Dash, etc., making the potential total losses in crypto much, much bigger.

Overall, cryptocurrencies are not that difficult to explain if you follow some tips above. If you need more insight into how cryptocurrencies are advancing right now, feel free to follow our news and recent posts — there’s something new every day.

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