How would you explain cryptocurrencies to your children, so that they would start investing when they grow?

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You might not realize it, but your child is about to enter the financial world. And while you might think they're too young to be investing... would you prefer them to invest in cryptocurrencies or put their money in a savings account? A savings account might offer a higher interest rate, but it's also capable of falling below zero during recessions. Instead, your child could invest in cryptocurrencies which are guaranteed by an entire economic system called blockchain technology. 

Curious about all this? In this article, you will find answers to your questions about cryptocurrencies. It will teach you everything you need to know to explain the essence of investing in cryptocurrency to your children. 

What are cryptocurrencies?

A cryptocurrency is a digital token that exists in a decentralized network (like the blockchain). Countries or banks don’t issue cryptocurrencies; and instead, they're generated by mining or through a process known as an Initial Coin Offering (ICO). While this may sound confusing to you, we'll break it down in an easy-to-understand way. Here we go...

Fiat Currencies: Where It All Begins!

Initially, cryptocurrencies were nothing more than ideas in someone's mind. Someone didn't like the central control banks had over their money and wanted to create something different. All these ideas led to the creation of "Bitcoin.”

Bitcoin Explained

Bitcoin wasn't the first digital currency- it was just the first to gain public attention. In 2008, a programmer or a group of programmers operating under the pseudonym "Satoshi Nakamoto" published a white paper describing how Bitcoin would work. The paper proposed a new digital currency that people could use to buy goods and services electronically without involving banks, credit card companies, or other third parties. It also explains how two parties could make peer-to-peer transactions using the software without needing an intermediary.

How is Cryptocurrency different from fiat currency?

An easy way to understand the difference between cryptocurrencies and fiat currencies is by using an example. 

  • Let's say you want to order a few pizzas from your local restaurant. Using your credit card, you call the restaurant, place your order and pay by credit card. With this transaction, there are 3rd parties involved- the restaurant, your bank (which issues the credit card), and possibly even Paypal (if you used them to make payments). That means there are at least three parties involved in making sure that pizza gets delivered to you. If any one of these three parties disappears or goes offline, then your transaction fails.
  • In a cryptocurrency transaction, there is no 3rd party involved. Instead, a computer program based on the blockchain records every transaction on a record of data. This record is called a "block.” A block consists of a header including the previous block's hash and timestamp and then "Coinbase transactions," all other transactions that get added to the end of the block. In the end, every new block created contains all sorts of valuable information, such as who owns how many coins and the details of every transaction that's made using it.

What are the benefits of cryptocurrencies?

There are several benefits that you can receive when you invest in cryptocurrencies.

  1.  Most cryptocurrencies are entirely decentralized (meaning no one person, organization, or bank controls them). This means there's no single point of failure, making it much more secure than fiat currencies. 
  2. You can use crypto-currency to make fast and cheap transactions, making it excellent for day-to-day purchases (and easy to transfer internationally). 
  3. Cryptocurrencies are also suitable for investing and trading. While most people who only invest in fiat currencies don't get very involved with their investment, INX crypto trading investors tend to closely follow the markets and gain familiarity with their investment plan. 
  4. Cryptocurrencies are also great for distributing micro-tasks (e.g., crowd-sourcing). For example, you can use cryptocurrencies to pay people for performing small jobs like surveys or answering questions. It's also great for everyone, including the unbanked. 
  5. The most significant benefit of cryptocurrencies is that it gives people the ability to transfer wealth outside the traditional banking system. This means that users can send or receive money without needing bank accounts or services like Paypal. 
  6. The other good thing about cryptocurrencies is that they're secure. With blockchain technology, you don't need to worry about fraud because everything is encrypted and decentralized.

Tips for investing safely

Before you start investing, here are a few tips that will help you to ensure that you are investing safely.

  • Understand what your investment is for. If you're investing with the thought of getting rich quickly, then it's probably best for you not to invest at all. The most important thing to understand is that the goal of cryptocurrency investment is to generate more wealth, not spend or sell them all. Some people think they shouldn’t own any cryptocurrency because if the prices fall far enough, they will be wiped out completely. Both of these viewpoints are extremely risky, and investors may lose money in both cases.
  • Research the differences between cryptocurrencies. Before you start investing in any cryptocurrency, it's essential to know what different types of cryptocurrencies there are and their benefits and differences. There are hundreds of different types of cryptocurrencies on the market today, and each market has its particular way of doing things. For example, some currencies only accept transactions through a specific website (ex: Coinbase or Kraken). 
  • Follow the rules. When you're investing in cryptocurrencies, it's essential to follow the rules set up by the exchanges you're using. You'll see that platforms offer ICOs to get new currencies off the ground with no restrictions whatsoever. This means that if scammers get involved, they have complete power over your funds. When you choose an exchange, make sure their security measures are above average, and don't hesitate to contact customer service with any questions or concerns.
  • Don't invest more than you can afford to lose. Cryptocurrencies are still in the early stages of development, so they're not very stable. So you'll find that prices fluctuate immensely a bit, especially during times of high demand. This means that investing too much can be risky, and you need to make sure you don't put in more than is worth. 
  • Also, think about the risks and costs of switching to another exchange if your funds get held or frozen. As mentioned above, the best thing is to understand what type of cryptocurrency you want to buy and how it differs from others on the market. 

Conclusion

Now your children can enjoy the security and stability that comes with investing in cryptocurrencies. Plus, you'll be able to teach your kids the importance of saving and how much better it can be than having a bank account. All these benefits will help your children build a much stronger financial foundation and better understand what they're worth as individuals.


 

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