Interested in investing in Ethereum (ETH), but not sure what it’s all about or how to buy Ethereum? Read on to learn everything you need to know about the project.
Ethereum Network is an open-source, decentralized blockchain platform that uses its native coin – Ether (ETH), to pay transaction fees (called “gas”).
The platform enables users to execute advanced processes through Smart Contracts, earn interest on their holdings through staking, use and store nonfungible tokens (NFTs), trade cryptocurrencies, play games, use social media, and so much more. Developers can utilize the Ethereum network to run decentralized applications (dApps) and issue entirely new crypto assets, known as ERC-20 tokens.
In 2019, the market value of Ethereum reached $16.3 billion. As of May 2021, Ethereum became the second-largest virtual currency on the crypto market, standing second only to Bitcoin. Many consider Ethereum a more promising investment than Bitcoin.
Ethereum is backed by several Fortune 500 companies and is used by many financial institutions.
So, how exactly do you start buying Ethereum, and how is it different from other investments? Let’s find out!
How to Buy Ethereum
Are you planning on investing in Ethereum? Follow our step-by-step guide on how to buy Ethereum:
Step #1: Assess Your Risk Level
There are risks involved in buying Ethereum. While all investments have some risk associated with them, cryptocurrencies are particularly volatile. Consider, for example, what happened when Elon Musk posted on Twitter that Tesla would no longer accept Bitcoin as payment. Almost immediately, Bitcoin’s value tumbled 15%. There’s a chance for the same thing to also happen with Ethereum.
Ethereum has indeed had impressive returns in the past. But, at the same time, it also had some significant crashes. For example, in May 2021, it went from a high of almost $4,000 per coin to less than $1,800 in June 2021.
With the examples mentioned above, it’s essential to consider your risk tolerance before buying Ether. But, if you think you can afford to lose, you can start investing.
Step #2: Choose a Crypto Exchange
Buying Ether is a little more complicated compared to purchasing mutual funds or stocks. This is mainly because cryptocurrencies aren’t traded on major exchanges such as the New York Stock Exchange, and only a few brokerages offer crypto investing. So, one of the first requirements for you to buy Ethereum is to create an account on a cryptocurrency exchange.
Fundamentally, a crypto exchange is similar to a brokerage platform. It allows sellers and buyers to exchange fiat currency for crypto, like Bitcoin, Dogecoin, and Ethereum.
You can start with a trading platform that offers a simple purchase interface for beginners, though it may charge higher fees.
Here are some of the most popular crypto exchanges that you can choose from:
These are just some of the few exchanges to choose from. Just do thorough research to ensure that you are picking a crypto exchange that fits your needs and skill level.
When picking a crypto exchange, a key consideration is whether they offer a crypto wallet to store your Ethereum. Most crypto exchanges provide this feature, but a few don’t so make sure to check it out.
If you have no experience buying cryptocurrency, you can use beginner-friendly platforms such as Cash App and Robinhood. However, they come at a hidden cost – you can’t withdraw your Ethereum investment to transfer it to a third-party wallet or use it to pay for online purchases. Your crypto can only be traded within the platform you buy it on.
Step #3: Fund Your Account
You have to fund your account with a payment method to buy ETH. There are several ways to do it. You can deposit money from your bank account or PayPal, complete wire transfers, or use a debit card.
Before deciding on what funding method to use, it is best to review the crypto exchange’s fees, since some have higher fees than others. For example, Gemini charges a 3.49% fee on debit card transfers, but wire transfers are free on Gemini.
You can also fund your crypto exchange account using a credit card. However, take note that most credit card companies consider cryptocurrency purchases to be cash advances. This means that you might have to pay a higher interest rate and cash advance fee on top of the crypto exchange’s fees.
Step #4: Buy Ethereum
When you’re buying stocks, mutual funds, or exchange-traded funds (ETFs), you’re limited by market hours. Exchanges mostly work during weekdays; however, that’s not the case with cryptocurrencies. Since Ethereum is a decentralized currency, you can buy or sell it at any time of day.
To purchase Ethereum, you have to enter its ticker symbol ETH in your exchange’s “Buy” field and input the amount of Ethereum you want to buy. If you don’t have enough money to buy a whole Ethereum token or simply don’t want to, you can buy only a fraction of Ethereum.
For example, if the price of Ethereum is $4,000 and you invest $500, you will purchase 12.5% of an ETH coin. It’s similar to buying a fractional share of stock.
Step #5: Store Your Ethereum
After successfully buying Ethereum, the next step is to store it. As mentioned above, most exchanges will store the crypto for you to protect it from hacking. Also, the vast majority of exchanges insure their clients’ holdings and often store most of their assets offline to protect them from theft. Moreover, users receive compensation in the case of a hack.
So, if you want peace of mind, you might consider moving your Ethereum to third-party wallets. There are two types of wallets:
- Cold Wallets: These are external devices entirely disconnected from the internet. You need to manually connect them to the internet every time you want to access your Ethereum or other cryptocurrencies. They’re safer and usually cost between $50 to $200, depending on the type you choose. There are also more expensive versions available.
- Hot Wallets: These are connected to the internet and are accessible from a smartphone or computer. For this reason, they are more convenient than cold wallets. They’re usually provided by cryptocurrency exchanges at no additional cost. But, since hot wallets are connected to the internet, they’re at a higher risk of being hacked.
Other Methods of Buying Ethereum
The abovementioned method is not the only way for buying ETH. Here are a few options you might want to consider:
Online Stock Brokers
This is the best option for those new to crypto and not having their own accounts on a crypto exchange platform or a third-party wallet. It’s a convenient way because a stock broker makes it easy and cheap to turn your traditional currencies into crypto and vice versa for you. However, this method has several drawbacks that you should consider. The biggest downside of using online stock brokers to buy crypto is higher fees. The second downside is the security risk. Make sure to check the fine print to see whether the brokerage gives you access to your wallet and lets you move coins in and out of the account since some brokers don’t. If they don’t allow it, this essentially nullifies the entire point of owning a digital currency.
Crypto Brokerages With Hosted Wallets
Crypto brokers with hosted wallets enable you to buy cryptocurrency with U.S. dollars and store them in a wallet provided by the brokerage. This method of buying ETH is ideal for beginners because the buying process is streamlined and straightforward. You can also send and receive ETH. Moreover, you don’t have to worry about forgetting the password or losing the private key to it with a hosted wallet. These problems are more common and have cost people millions of dollars. Instead, the host stores this information for you.
If you already have your own wallet, you can buy and sell Ethereum in a decentralized exchange or DEX. Using DEX is the most genuine way to trade cryptocurrencies since there is no third party involved. With DEX, you have complete autonomy over your funds, and you can trade directly with buyers and sellers. This is contrary to most centralized exchanges requiring you to deposit money you want to trade on the market into a trading account. However, DEX has a steep learning curve, and the interface can be quite complex, making it not an ideal option for beginners. Moreover, it is commonly used for trading one crypto for another rather than buying Ethereum with cash.
Should You Invest in Ethereum in 2021
COVID-19 accelerated the pace of moving to a more digitally connected society. Experts believe Ethereum will continue to be a driving force in the crypto space as we advance due to its choice for smart contracts and ETH2.0 upgrade switching Ethereum to Proof of Stake from Proof of Work consensus mechanism.
Some experts even believe that Ethereum has the potential of having the same price movement as Bitcoin.
The price of ETH is predicted to be a rollercoaster for the foreseeable future. The consensus of experts says that ETH will continue to climb, certainly faster than the stock market rate. The current uses of ETH in its smart contract form and ever-increasing use of DApps cost-effectively running on the Ethereum network evince that Ethereum will have a very bright future.
Ethereum is extremely popular, with a market capitalization of over $232 billion.
You should consider buying ETH if you want to: Create decentralized applications, diversify your long-term investment strategy, play Ethereum-based games or use Ethereum-based applications, or execute smart contracts on the Ethereum blockchain.
Choosing the right way to buy and hold ETH comes down to your investment goals and how much ETH you plan to buy or hold. It’s possible to use a combination of the above methods, perhaps using one platform for convenient trading and another for long-term holding.
One of the most critical aspects of the Ethereum network is that transactions are irreversible. Therefore, double-check all the details before confirming a transaction.
Consider investing in a hardware wallet if you intend to buy, sell, and hold ETH in large amounts. Self-hosted wallets provide more control over stored funds, but they also have added responsibility and required knowledge.
Implement extra safety steps where possible, such as two-factor authentication and so on.
Before buying a volatile investment like Ether, you’ll want to make sure you’ve done your independent research, and you have a large emergency fund. It’s also important to diversify your portfolio, so only a portion of your investments should be in Ethereum’s cryptocurrency and other digital currencies.
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of or solicitation to buy or sell ETH.