Cryptocurrencies like Ethereum have significantly changed the investment landscape over the past decade. And many believe that crypto — and the blockchain technology that powers it — has the potential to change many aspects of our lives in the future.
Are you curious about Ethereum? This guide is tailored to parents who may be interested in exploring Ethereum for their kids.
From the basics of how Ethereum works to how adults can invest in Ethereum on behalf of children, this comprehensive guide will answer all your questions about Ethereum for kids.
Ethereum for Children: The Basics
Ethereum is a decentralized, open-source blockchain technology. “Ethereum” also refers to Ether (ETH), a popular form of cryptocurrency among investors — more on this below.
To understand what Ethereum is, let’s break down each key term in the one-sentence definition above.
Ethereum is the name of the technology itself. You can think of the term like the word “internet.” It’s a network, a technology, and a platform for a huge variety of different applications. We’ll break this down even further below.
Decentralized means there is no central authority governing, managing, or overseeing the system. Instead, a large network of individual nodes — run by volunteers — powers the Ethereum network.
Open-source means that the technology that powers Ethereum is publicly accessible. The code that runs Ethereum and its thousands of applications is all open-source. This allows developers from all over the world to work together on developing new Ethereum-based technologies.
Blockchain refers to a digital, decentralized ledger that is publicly accessible by anyone. Every time a transaction is made on the Ethereum blockchain, a record of that transaction is added to the blockchain and made publicly available. We discuss how blockchain tech works in our intro to cryptocurrency guide.
Ethereum, Ether, and ETH
Ethereum refers to the actual blockchain technology that powers the decentralized system.
You can think of Ethereum like the internet itself: It’s a network that powers thousands of applications, enables cross-border payments, utilizes smart contracts, and provides the underlying infrastructure for much of our day-to-day lives.
Ether (ETH) is the native token of the Ethereum blockchain. ETH is used to pay for transaction fees on the Ethereum network.
You can think of ETH as a currency, such as the U.S. dollar: It can be used to pay fees and be exchanged freely for other currencies via a cryptocurrency exchange.
There are, of course, significant differences between ETH and something like the U.S. dollar. This comparison is meant to help conceptualize the difference between Ethereum as a crypto technology and Ether as a cryptocurrency.
When people say that they are investing in Ethereum, they are technically investing in Ether.
Ethereum is the technology, while Ether is the currency.
That said, investing in Ether is essentially investing in Ethereum technology itself. Ether is required to interact with the Ethereum blockchain.
The Ethereum blockchain powers hundreds of decentralized applications (Dapps), from decentralized finance (DeFi) lending platforms to non-fungible token (NFT) trading platforms and much more.
As more people, companies, and applications use the Ethereum blockchain, Ether becomes more valuable because there are a limited number of Ether tokens in existence.
Parents and loved ones of children may be interested in investing in Ethereum on behalf of young children. But how does this work, exactly?
Investing in Ethereum for Children
There are several different crypto investing strategies and techniques to consider.
The methods below are the strategies that make the most sense for investing on behalf of children:
EarlyBird is an investment app that helps adults invest in the children they love. Here’s how it works:
- Any adult can set up an EarlyBird account and assign a child as the beneficiary.
- The account is structured as a UGMA custodial account, with the adult as the custodian.
- In addition to the custodial account, the adult can open up a custodial crypto wallet.
- When the child becomes a legal adult, they will gain full access to the account and can use the funds for anything.
- Adults can contribute to the account and invite others to contribute collectively.
- Funds can be invested in pre-made portfolios designed by experts.
- Portfolios consist of stocks, index funds, bonds, and more.
- Some portfolios include an allocation to cryptocurrencies, including Ethereum.
You don’t need to have any investing experience to use EarlyBird. And the best part is it’s very easy for anyone to contribute once the account is set up. You can text a link to grandparents, aunts, uncles, friends, and more, and everyone can collectively invest in the financial futures of the children they love.
Cryptocurrency exchange and crypto wallet
The standard way to buy cryptocurrency is to use a cryptocurrency exchange, such as Gemini.
However, all reputable crypto exchanges require users to be at least 18 years old, and they must comply with “Know Your Customer” (KYC) regulations.
What this means in practice is that children cannot use cryptocurrency exchanges. And parents cannot set up a crypto exchange account on behalf of a child.
The workaround is for an adult to open an exchange account, buy crypto, and then transfer that crypto to an Ethereum wallet. Parents could use a “hardware wallet,” which is a specialized USB drive, to store the Ether offline. They could then gift the physical hardware wallet.
This is a more advanced strategy and is not recommended for most people. It can also be risky — the child could lose or damage the wallet or forget their seed phrase (password).
Cryptocurrency exchange traded funds (ETFs)
An indirect way to invest in cryptocurrency is to use a cryptocurrency fund, such as a cryptocurrency ETF or mutual fund. These ETFs trade like stocks and can be purchased in most brokerage accounts.
The majority of crypto ETFs use futures contracts to mimic the performance of the underlying cryptocurrency. You don’t directly own any actual cryptocurrency when you own a crypto ETF. But the performance of the ETF should be similar to the performance of the underlying cryptocurrency.
Adults could set up a custodial investment account on behalf of a child. From there, they could buy a cryptocurrency fund within that account.
Currently, no ETFs focus on Ethereum (most focus on Bitcoin). There is one Ethereum-based cryptocurrency fund named Ethereum Grayscale Trust (ETHE), but this fund has very high fees and is not a true ETF.
You can read our article on cryptocurrency ETFs to learn more about how they work.
Can Children Buy Ethereum?
Children can own Ethereum, but buying it is more tricky.
The primary way to buy Ethereum is to use a crypto exchange. Every reputable exchange requires users to be legal adults.
Thus, the only straightforward way for children to own Ethereum is if they are gifted it by an adult.
Ethereum is an exciting technology that holds massive potential. Some say it could be the future of money.
Whether you want to invest in Ether or simply learn enough about crypto to explain it to kids, it all starts with understanding the fundamentals of blockchain technology.
As for investing in Ethereum (ETH) for children, the simplest way is to use EarlyBird Crypto. The EarlyBird platform lets loved ones build a diversified portfolio of stocks, bonds, cryptocurrency, and more to invest in the future of the children they love.
This page contains general information and does not contain financial advice. All investments involve risk. Any hypothetical performance shown is for illustrative purposes only. Actual investment performance may be different for many reasons, including, but not limited to, market fluctuations, time horizon, taxes, and fees. Please consult a qualified financial advisor and/or tax professional for investment guidance.