How to explain crypto (Part 6 of 7)

Learning how to explain crypto in a way your older relatives will easily understand can be challenging. After all, figuring out how to break down the complex technical aspects can be tricky. 

That’s the purpose behind this series: to help you learn how to explain crypto in a way anyone can understand. This series will gather all the information you need in one place so you don’t have to jump around to different sources and figure out how to put it all together.

Previously, we took a look at crypto-backed loans and crypto lending. In this post, we’ll look at another use case: giving crypto as a gift.

Why would you want to give crypto? 

Before you figure out how to explain crypto gifting, your parents might be wondering why anyone would want to receive crypto as a gift in the first place. 

The most simple explanation is that younger generations invest in cryptocurrency at much higher rates than their older counterparts. According to Fidelity Charitable, 1 in 3 millennials already own crypto, and nearly 50% view it as a good investment. 

If there’s anyone in your parents’ lives who has expressed interest in digital assets, or investing in general, crypto can make the perfect thoughtful gift that is tailored to their interests. 

How to explain crypto gift-giving

Gifting crypto to loved ones 

Transferring from one wallet to another

If you aren’t sure how to explain crypto gifts, you should start by breaking down the different ways to give crypto. 

If both parties already have crypto wallets, you can simply send the crypto to the recipient’s wallet address. This can be done from the wallet provider’s website or app, or on an exchange like Coinbase. 

Crypto gift card

If you don’t have their wallet address, the easiest way to give crypto is with a crypto gift card. These are digital cards you purchase from an exchange and send to the recipient through email.

If they already have an account with the exchange, they will be prompted to log in to their account to get the crypto. If they don’t have one, the card will help them set one up to claim the gift. 

You can find digital cards on popular exchanges like Coinbase and Binance, but you will need to create an account on the exchange first. 

Voucher

Crypto voucher sites allow you to give crypto without creating an account or using an exchange. Here, you can choose from a handful of cryptos and purchase them directly from the site with your debit or credit card, or buy a prepaid voucher at a participating online retailer. 

Then pass along the voucher code to the recipient, and they can redeem it to receive the crypto. To do this, they will need a wallet address. 

Gifting crypto to a child 

When you’re deciding how to explain crypto gifting to minors, you should be aware the process is a little bit different. 

Unfortunately, you cannot set up a crypto custodial account for a minor like you could for a bank account or stocks. This is because most centralized exchange platforms require users to be at least 18 years old. 

However, this doesn’t mean it’s impossible to give crypto to a child or grandchild. 

The first option for giving crypto as a gift to a minor is opening a wallet in your own name, purchasing crypto, and holding it over the long term. Then, once the child is old enough, help them create a wallet and transfer it to them. 

Similar to this, you can keep your crypto in a cold wallet (which you should be doing anyway if it’s a large amount of crypto!) and then simply give the wallet private key to the minor once they are old enough to care for it responsibly. 

Another option is to open a custodial account for the child with a traditional financial services provider and invest in crypto indirectly through a Bitcoin ETF.

One investment platform in particular called EarlyBird has partnered with Gemini to create crypto-friendly custodial accounts. Through this partnership, a parent can link their Gemini account to the custodial account so whenever they purchase crypto, it goes straight into their child’s account.

Donating crypto to charity

Crypto donations are becoming increasingly popular. Aside from supporting great causes, donating also means you don’t have to pay taxes on your crypto, and can possibly deduct the donation from your income. 

You can donate your crypto to a wide range of charities. A few well-known non-profits that take crypto include:

• Saving the Children
• American Red Cross
• Human Rights Foundation
• Lupus Foundation of America
• Rainforest Action Network
• Wildlife SOS

Donating crypto can easily be done through platforms like the Giving Block, Fidelity Charitable, and Bitpay. 

Things to consider when giving crypto as a gift

How does crypto compare to savings bonds or stocks?

Your older relatives might wonder if giving crypto as a gift is similar to gifting savings bonds or a share of stock.

Savings bonds guarantee specified interest payments and an eventual return of the principal. Unfortunately, crypto does not offer the same type of guarantee. 

Instead, crypto is more comparable to stocks, which change in value depending on how the company performs in the market. 

The main difference is that crypto is just more volatile than traditional stocks. However, when you consider crypto’s consistent growth over the long term, the short-term price fluctuations won’t stop your crypto from increasing in value over the years.

Security

Another concern you should address when learning how to explain crypto gifts is the possibility of being hacked.

While this is a valid concern, there’s no need to worry as long as you take proper precautions to protect your investment from being stolen. 

This includes making sure the recipient knows to store their crypto in a hot or cold wallet, not just keep it on the exchange. 

In addition, other factors like installing two-factor authentication, making sure you have a secure WiFi connection, and avoiding phishing scams will help protect you from hacks. You should also consider creating a new email address when signing up for an exchange account.

Taxes and fees

An important point to include when you’re figuring out how to explain crypto gifts is an explanation of taxes and potential fees. 

Crypto gifts are not taxable as long as they fall below the $15,000 gift tax allowance. So if your gift is more than this amount, you will need to pay a tax. Keep in mind that the gift tax allowance increases every few years.

On the recipient’s end, they will not have to pay taxes on their crypto until they sell it. The amount they pay will depend on how long they have held the crypto and whether they are selling it at a capital gain or loss. 

Aside from taxes, there are some other fees to consider when gifting crypto. For example, when you buy or sell crypto through a centralized exchange, the platform will usually take a small fee. In addition, there can be fees for moving crypto off an exchange and into a wallet. 

What’s next in the series?

Giving crypto as a gift is a great choice for anyone, no matter how old they are. It’s now easier than ever to send crypto gifts to friends and family or to donate crypto to support the causes that you care about. 

Now that we’ve taken a look at how to explain crypto gift-giving, what will we cover next? The last use case for crypto we’ll explore is likely one of the top questions your parents might have: what can you even buy with your crypto?