What is Cryptocurrency? Explaining the Basics to Kids

Cryptocurrencies are digital tokens used for person-to-person transactions without banks. Learn more about crypto basics for kids: what it is and how it works.

What is Cryptocurrency? Explaining the Basics to Kids

Cryptocurrencies are digital tokens, they are not physical currencies or cash. They are a type of digital money that allows people to make payments directly to each other through an online system. They were created to allow person-to-person transactions without the need for banks. A cryptocurrency is a type of currency that uses digital files as money.

Files are usually created using the same methods as cryptography (the science of concealing information). Digital signatures can be used to keep transactions secure and allow other people to verify that the transactions are real. The first cryptocurrencies were created to be independent of government-issued currencies. Cryptocurrencies use “decentralized control”, meaning that they are not controlled by a person or a government.

To use cryptocurrency, you need a cryptocurrency wallet. These wallets can be software that is a cloud-based service or that is stored on your computer or mobile device. Wallets are the tool through which you store your encryption keys that confirm your identity and are linked to your cryptocurrency. Cryptocurrency is all the rage right now, but remember that it's still in its relative infancy and is considered highly speculative.

You've probably read about some of the most popular types of cryptocurrencies, such as Bitcoin, Litecoin, and Ethereum. In addition, some cryptocurrencies, including Bitcoin, have risen in value, making early adopters rich. If you plan to buy cryptocurrency, you can do so by selecting buy, choosing the type of order, entering the amount of cryptocurrency you want to buy, and confirming the order. Just as you wouldn't carry a million dollars in a paper bag, don't choose an unknown or lesser-known wallet to protect your cryptocurrency.

These include payment services such as PayPal, Cash App and Venmo, which allow users to buy, sell or hold cryptocurrencies. Read the websites of the currency itself (such as Ethereum, Bitcoin or Litecoin) to fully understand how it works, and also read independent articles about the cryptocurrencies you're considering. Before converting real dollars, euros, pounds or other traditional currencies to (the symbol of Bitcoin, the most popular cryptocurrency), you must understand what cryptocurrencies are, what are the risks of using cryptocurrencies and how to protect your investment. In addition, since cryptocurrencies are technology-based intangible assets, they can be hacked like any other intangible technological asset.

In many cases, cryptocurrencies cannot be converted to real currencies; it is only possible to convert them to other cryptocurrencies or use them to buy things. Fortunately, there is a simpler option that doesn't skimp on security, makes it easier to set up recurring investments and simplifies the process of receiving financial gifts in cryptocurrency (for a birthday or a baby shower, for example). If your investment portfolio or mental well-being can't support that, cryptocurrency may not be a good choice for you. Then there's direct cryptocurrency hacking, in which criminals break into digital wallets where people store their virtual currency to steal it.

Marci Gauer
Marci Gauer

Award-winning zombie guru. Certified bacon nerd. Infuriatingly humble social media enthusiast. Incurable internet expert. Certified coffee maven.

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