How to Buy Ethereum
Launched in 2015, Ethereum has earned stature as the second largest cryptocurrency in terms of market value, surpassed only by the first successful digital currency, Bitcoin.
Despite historical volatility, the nature of Ethereum and its purpose make it an attractive instrument for many investors that see its future potential.
With increased interest, and a relatively steady rise recently, you may be considering it as an investment option for yourself.
So in this article, we’ll look at the basics of this complex cryptocurrency, before walking through the steps of how to buy it.
What Is Ethereum?
Although we’ve termed it a cryptocurrency, that’s not technically the case with Ethereum.
Ethereum is actually a decentralized blockchain network. It runs on its own programming language, Solidity, which is used by developers worldwide to create smart contracts and decentralized applications (commonly known as dapps).
The cryptocurrency of the Ethereum network is called Ether (ETH). This is the currency users must pay to develop, run and access dapps. You may see Ether referred to as the gas that fuels the Ethereum network.
That said, Ethereum is often used in reference to both the blockchain network and the cryptocurrency.
It sounds complex, but we can simplify it by comparing Ethereum to Bitcoin.
The latter is what is generally seen as the default cryptocurrency. It was invented to disrupt the finance industry through the provision of a secure, virtual currency not governed by any central authority.
By contrast, Ethereum was initially created not to compete with Bitcoin, but to use blockchain technology for a different purpose – namely to remove the middleman from certain service provisions.
For example, when a business takes payments, it's traditionally done through a payment processing company. With apps built through the Ethereum network, the business can run an intelligent solution protected from fraud, without any third party involvement. Transactions are executed quicker, and with lower associated costs.
Since Ether is used to fund these solutions, innovations in and increased adoption of dapps are what drive the cryptocurrency’s value.
Why Buy Ethereum?
The Ethereum network is growing and it seems, at present, there are endless possibilities for platform use.
When you invest in Ether, you’re essentially taking a gamble that that platform use will continue to expand.
As a result, demand for Ether will increase, its availability will decrease, and the cryptocurrency you hold will be of greater value than your initial investment.
Of course, cryptocurrencies are known for their volatility, so it’s not a safe bet, but volatility also provides opportunity, and Ethereum is currently experiencing substantial growth.
Since the start of 2021 alone, it’s jumped 273% in value. When you compare this to the 86% increase in the value of Bitcoin in the same time frame, it’s clear why the latter is becoming increasingly popular.
This all comes back to the network. Applications held on the Ethereum blockchain are used by a growing number of Fortune 500 companies.
They’re also growing in popularity with financial institutions – a rare occurrence in the world of cryptocurrency.
In addition, non-fungible tokens (NFTs) are on the rise. These are digital collectables, like artwork, held on the Ethereum blockchain.
All of this combined is what is driving the value of Ether.
Weigh Up Your Investment Options
There are a couple of options for trading in Ethereum, and the right one for you will depend on your level of experience.
If you’re a complete beginner, it’s advisable you play it safe and stick to a reputable crypto to fiat exchange, as this allows you to easily cash out on your investment.
Of course, if you are a novice, it’s also advisable to take a cryptocurrency trading course before you proceed.
For those who do have some market experience, you might consider a crypto to crypto exchange, which will allow you to build a multiple currency portfolio, and/or convert other investments into Ethereum.
Decide What You Can Afford to Invest
When you’re comparing cryptocurrency exchanges, you’ll find that each has its own minimum purchase amount.
One of the benefits of trading in Ethereum is that these minimum purchase requirements are often low, but obviously your choice of exchange will be determined by how much you can safely afford.
The golden rule is to never invest anything you’re not prepared to lose. You should also consider how long you’re prepared to hold your investment, since you may have to keep your Ethereum for some time to return a decent profit.
Choose an Exchange
This step requires complete due diligence. Unfortunately, scam exchanges are not uncommon, and if you’re new to trading it can be easy to fall victim.
You want to make sure your funds and personal information are secure, so do your research.
Look at where the exchange is located, and how long it's been in operation. Read its safety and security policies in full, and look around online for as much information from other users as you can find.
You’ll also want to determine if it's suitable for your level of experience – for example, how user friendly is its interface, and what educational support does it offer?
To help you get started, here’s a quick look at three of the most popular exchanges dealing in Ethereum:
Founded in 2017, Bianca is the biggest cryptocurrency exchange worldwide, based on revenue.
Accounts are available across much of Europe and Asia, though US users will find some location limitations.
There’s plenty of educational content provided, but if you’re lacking in confidence you may find its interface a little intimidating.
For more experienced traders, though, it is recognized as a secure exchange, with Two-Factor Authorization (2FA) for account login.
This is the most popular exchange in the US, and is also widely available to users in Europe and Asia.
Again, you’ll find 2FA security for account login, and a strong reputation for all-round safety, with no hacking incidents reported in its nine years of operation.
Coinbase is a good choice for beginners, with a simple to use interface, and minimum purchase amounts at the equivalent of just $2.
Founded in 2011, Kraken is a well-established exchange based in San Francisco.
Another good choice for beginner traders, you’ll find lots of educational guides and resources available, complemented by a user-friendly interface.
It’s available throughout the US and Europe, as well as in Canada and Japan.
If there’s a downside, it’s a lack of live customer support, but if that’s not an issue for you, Kraken in an exchange well worth consideration.
Take Note of Fees
Before making a final decision on an exchange, look closely at its fees, as these can vary significantly.
Transaction fees on trades apply whether you’re buying or selling (where you’ll be referred to as the taker or the maker), but you’ll also need to account for associated costs like deposit, withdrawal and conversion fees.
All of these will impact your profit margin, so make sure you’re aware of whatever applies to your account before signing up.
Verify Your Account
Once you’ve settled on an exchange, you’ll need to provide some basic personal details to open your account, like your full name, address, age and social security number.
You’ll then go through a verification process. This procedure varies, but typically you’ll be required to provide stated forms of identification, which will be checked off before your account goes live.
The verification process may take a couple of days, though some exchanges complete it in a matter of hours.
Once your account is verified, you’re ready to invest. You’ll need to deposit funds by connecting a bank account or debit card to your account.
Remember here that you should never deposit more than you can afford, but also keep in mind transaction fees.
These mean you’ll pay more if you dabble in multiple, smaller transactions, so it’s usually best to invest more at once. It’s all about finding the right balance.
Once you’ve decided on a safe amount, convert it to purchase your Ether.
When you’re ready to withdraw, you can sell your Ethereum and have any profits directed to your bank account if using a fiat exchange.
In most cases, you’ll also have the option to withdraw to a digital wallet hosted by your exchange.
As you grow in confidence, you may want to set up your own wallet outside of this. This gives you added security, and the ability to transfer Ethereum between users without any third party involvement.
The Ethereum network is currently disrupting the cryptocurrency market, and though not originally intended as such, Ether is now a strong competitor to Bitcoin.
It offers a little more diversity, and once you’ve gained experience with the cryptocurrency itself, you may look to trade in assets like NFTs.
Current demand certainly indicates future potential, but, as with any investment, you need to plan for uncertainty and mitigate any potential risk.