How to gift crypto to your child: give the gift of investment

So you want to start putting away some crypto for your child? If you hadn’t considered it before now, allow me to explain why you might want to. 

These days, you can’t just plop some money in a bond for your kids or grandkids and hope it will be a good investment in the future. You may even be hesitant to go with the old Roth IRA option as questions about future market corrections and ever-increasing inflation loom large. Even good returns on investment portfolios look meager against the devaluation of the US dollar. That’s where cryptocurrency comes in.

If you want to diversify your child’s future by completely exiting the fiat game without setting up a giant safe full of gold, perhaps you should consider obtaining some crypto for your child. There are, however, some questions that any good parent probably has about the idea before diving in. 

This is a guide to get you started on your journey to gift crypto to your child.

Is gifting crypto to your child legal?

This is probably one of the first questions most people ask, considering there are still a lot of unknowns about how cryptocurrency is currently regulated and how it may be regulated in the future. 

There are tax implications for crypto profits, which you can read more about here. But legal uncertainty shouldn’t be a cause for concern. Bitcoin and many other cryptocurrencies are completely legal in the US. The only catch comes in when using centralized crypto on-off ramps to obtain crypto in the first place. 

Minors can’t register for and use platforms that require identifying KYC (know your client) info. Most of the major centralized exchanges like Binance and Coinbase require KYC—but don’t worry, that doesn’t have to be a roadblock. There are non-KYC options that you can use to set up a wallet for your child. In fact, the trustless and self-custodial nature of crypto is one of the reasons why it’s attractive as a savings and investment option—no one can tamper with or gate-keep how your child’s crypto is used. 

Make a wallet to save crypto for your child

You, as an adult, can get crypto from a centralized exchange on-off ramp pretty easily. 

Once you have some Bitcoin or Ethereum or whatever cryptocurrency you choose, you can send it to a non-custodial wallet. The keys to that wallet can be turned over to your child when you’re ready for them to have access to it. Because there is no identifying information attached to who owns a self-custody wallet, the only thing your child will need for authentication is the seed phrase or private key. 

Here are some different wallet options you might consider using.

Hardware wallet

Hardware wallets like Trezor and Ledger are a good option to cold store crypto for your child. All you have to do is send cryptocurrency to the wallet and leave it there. Easy. When you’re ready, you can give the physical device, which looks similar to a flash drive, to the kid you’re saving it for. Perhaps you want to wait until they’re 18 to give them custody, or perhaps you want to teach them about wallet safety at an early age and let them self-custody.

Paper wallet

Another physical option is a paper wallet. It’s possible to generate a public and private wallet key offline and store it in physical, paper form. This way, no internet hackers can ever access it and you can transfer it to your child without any special digital authentication.

Noncustodial hot wallet

If you don’t want to go the physical route, a noncustodial hot wallet is an option. Of course, you will always want to understand the security concerns that come with hot wallets but using proper security measures, you can transfer the wallet with crypto for your child as soon as you’re ready.

Get your child’s blockchain domain

Something else to consider is getting a decentralized web domain for your child—perhaps their name. It’s likely that crypto domains will become important for decentralized identity (DID) in the future and having a .eth or .crypto or .sol domain attached to your child’s wallet can set them up for managing their own DID and all kinds of Web3 authentication needs in the future. You can read more about blockchain domains here.

Give them access when they turn 18

If you set up a noncustodial wallet with crypto for your child before they turn 18, you may or may not decide to give them access to it. Once they do turn 18, however, it should be pretty straightforward to turn over the wallet keys to them.

Perhaps you even want to get a little bit complex and allow the kids access to their wallets at a younger age. This can be done in a safe way with multi-signature authentication, which allows them to access the funds but only with the approval of a co-signer like yourself. 

It’s even possible to create something like a trust using a smart contract. By writing blockchain code that gives your child access to the funds when certain requirements are met (like “age”, for example), the wallet can act almost like a trust. This may be a bit more complicated, but you can read more about it here when you’re ready for a walk-through on how to set up a wallet.

Things to watch out for when setting up a crypto wallet

While setting aside some crypto for your child might be a good idea, there are some things to watch out for as well. Easier set-up is often an attractive selling point, but it’s not always prudent. There may be services or projects offering tools to help you secure your kid’s crypto—but beware if you haven’t thoroughly vetted the project. 

Here are a few examples:

• Nested claimed to help set up Bitcoin trusts; however, their website doesn’t work.
• Pigzbe was a crypto education platform to help teach young kids about crypto and let them earn coins, but their website has since shut down as well. 
• Heirloom Trust also says it has options for parents wanting to make crypto trusts for their kids. At this time, the website says they’re not taking any orders.

Keeping security in mind and maintaining self-custody of your child’s funds until you’re ready to transfer them is probably your best option.

Remember: whether you or your child holds the crypto, there will be tax implications. 

There are tax laws for assets held by children that you may want to read about if you claim your children as dependents on your tax return.

Teach your kids about crypto at any age

Even if you don’t give your kids custody right away, it’s never a bad idea to begin teaching them about money, investing, and cryptocurrency. 

You may get them interested through play-to-earn (P2E) games. You can also help them set up a non-custodial wallet and teach them about security and storing their seed phrases. It’s also a good idea to teach them about money principles like how banking and fiat currency works compared to Bitcoin.

In places like New York City, mayor and crypto advocate Eric Adams wants to see blockchain and crypto taught in schools. The sooner you get your kids educated and knowledgeable about how money and investing works, the better they’ll be set up for the future.

They may know more than you about crypto

Now, while I do applaud you for being an astute and forward-thinking parent who wants to get crypto for your child, let’s be realistic—they may already know more about crypto than you do!

In the age of memes, NFTs, and P2E, it’s not unlikely that your kids have heard about or experimented within the crypto world. That’s a good thing! 

Talk to them about it. Learn from them and with them. Help provide your wisdom as an adult to complement their savvy as tech natives. 

Together, you can establish a financial future for your child and for yourself and be ahead of the curve!