Cryptocurrency may be the new kid on the block in terms of investing, but some cryptos are rapidly gaining value. And while Bitcoin may get the lion’s share of attention among cryptocurrencies, other alternative assets, like Ethereum (ETH), are hot on its heels. For aspiring crypto investors, one of the first questions that comes to mind is how to buy Ethereum.
But before learning how to invest in Ethereum, it’s important to get to know the history, attributes, and other details of this popular cryptocurrency. In this article, we’ll address:
• What Is Ethereum?
• How to Buy Ethereum.
• Buying Ethereum: Important for Investors.
Ethereum 101 Overview
Ethereum is a blockchain-based platform used to make peer-to-peer transactions and build applications. It may be easier to think of Ethereum as an application marketplace, rather than a currency. Ether (ETH) is the platform’s native coin, and it can be bought and sold by investors, like Bitcoin (BTC) and other types of cryptocurrencies on the market; but their underlying technologies and utility are quite different.
What is Ethereum, exactly? A goal of Ethereum is to provide programmers and developers with a platform to build decentralized programs; a way to create computer apps without getting involved with the middlemen who generally want to control access to the apps — like how Google or Apple have control over their respective app stores.
Ethereum’s value stems from key attributes: One, it has intrinsic value — people are willing to pay for it with cash (fiat currency, like the U.S. dollar), for example. And two, it comprises an actual platform with a degree of utility — a claim which many other cryptos cannot make. Today, hundreds, if not thousands, of businesses and industries use ETH as their foundation.
Four Steps to Buying Ethereum
If you want to purchase or invest in Ethereum, it’s not difficult to get started. While Ethereum itself is something of a complicated asset, buying it or investing in it is straightforward — particularly for investors who already have cryptocurrency among their assets. Here is a simplified, step-by-step guide to investing in Ethereum.
1. Get a Crypto Wallet
Anyone serious about investing in Ethereum would need to get a crypto wallet, which lets you store cryptocurrencies safely. Digital assets can be vulnerable to theft, so it’s important to keep your assets safe. Some wallets are made by the coin developers themselves, others are made by a third-party developer.
2. Create an Account on a Crypto Exchange
Investors would also need to create an account on a crypto exchange of their choosing, on which they may buy and sell cryptocurrencies, including Ethereum. Think of a crypto exchange as similar to a stock exchange. Crypto exchanges are either centralized, decentralized, or hybrid. Some investors find centralized exchanges useful because of the third-party oversight that helps transactions go through properly, and allows for exchanging fiat for crypto.
3. Fund Your Account
With a wallet and an exchange account, the next step is to have a medium to exchange for Ethereum. For most people, this simply means funding their account with good old dollars and cents (fiat). The process is similar to funding a brokerage account, so you can buy stocks or bonds. Once you fund an account, the resources will be at hand when you’re ready to trade.
4. Start Buying Ethereum!
With a verified and funded account, investors should be ready to start buying Ethereum with as little as $10. While the specific steps for buying or selling cryptocurrency will depend on the specific exchange, it’s generally similar to buying stocks through a brokerage.
Whatever the exchange, you’re now positioned to start trading or buying Ethereum. And once the trades have settled, remember to withdraw the assets into the aforementioned digital wallet for safekeeping.
Where to Buy Ethereum
You can buy Ethereum on almost every crypto platform; you may even see crypto ATMs, some of which might offer ETH.
The most common place to buy or sell ETH is on a cryptocurrency exchange. Crypto exchanges usually offer convenient ways to deposit and exchange fiat; along with reasonable fees, and a large selection of crypto assets. Some traditional finance (TradFi) brokerages also offer a limited selection of cryptos, along with the more conventional assets, like stocks and bonds. Most brokers and exchanges also have mobile apps to make it easy to trade on the go.
Say you’ve been investing in Ethereum for a time, and the asset has performed well; such that you’re thinking about withdrawing some of your ETH to convert to fiat (USD) to pay for some badly needed home repairs (not all U.S. retailers accept cryptocurrencies as payment for goods and services). Can you do that, and is it difficult? Yes, and no. Selling Ethereum is pretty straightforward, too.
The most common way to cash out your ETH is by using a peer-to-peer crypto exchange, though it’s also possible to sell it to an individual user directly — either someone you know, or via advertising. If you opt to sell directly, it’s wise to keep safety at the forefront: Make sure that the person you’re trading with has the funds available and is ready to commit to the transaction. Double-check your data for any errors: Check the public exchange address, the amount you are selling, what you’re getting in return, the exchange rates, and fees.
Advantages and Disadvantages of Buying Ethereum
In 2022, the only crypto that could potentially exceed Bitcoin in terms of market capitalization and popularity is the second-largest crypto, Ethereum. However, it’s a mistake to think that BTC and ETH are rivals; they are not. Technically, Ethereum is not even a cryptocurrency. Rather, Ethereum is a powerful computer that runs on blockchain technology, on which developers can build all kinds of apps. It’s more accurate and appropriate to think of these two assets as complimentary — each with a critical role to fulfill.
Benefits of Buying Ethereum
• Coming upgrades could resolve old issues: Ethereum has been working toward switching from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism, which is slated to finish in fall 2022. Industry watchers believe that this initiative — called the Ethereum merge, or Ethereum 2.0 — could reduce ETH’s energy consumption by more than 99% of its current levels. In addition, the new upgrades could potentially make Ethereum more affordable for users to mint and develop products, as right now the service fees (gas) to use ETH are notoriously high.
• ETH is highly liquid: One of the main reasons people are attracted to Ethereum is that it’s among the more liquid cryptocurrencies. You may exchange it quickly and easily.
• A volatility play: Although the concept of volatility mostly presents a challenge for investors, a savvy and nimble trader could in fact turn a volatile Ethereum marketplace into a net positive event. How? By identifying patterns in the volatility, then customizing strategies to profit from them.
Risks of Buying Ethereum
• Too-high expectations: The risks of buying ETH are similar to those of buying any other crypto. That said, each crypto can carry unique risks, endemic to that coin only. Moreover, some benefits can also be interpreted as risks, as is the case with the Ethereum merge cited above. Investors and the entire crypto/blockchain sector alike have high hopes for Ethereum 2.0 and eagerly anticipate the merge. As with any new tech, there’s a risk that it could go awry; might not achieve its hoped-for results, could prove more expensive than projected, or might not happen at all.
• An evolving industry: The crypto and blockchain sectors are still new, and they’re changing all the time. In the midst of this, the Securities and Exchange Commission (SEC) and other governing agencies are trying to catch up by drafting regulations for these sectors on the fly. We don’t know what will happen to the crypto sector in the future; nor how many of today’s crypto platforms and exchanges would even be around in the next decade.
• More volatility: By now, you’re probably used to hearing the term volatility used synonymously with the crypto market. It’s a perfect example of how, as cited above, in different hands an asset can just as easily become a liability.
Ethereum: Investing Reminders
Remember that cryptocurrencies, and blockchain assets like Ethereum, are inherently risky investments. The rule of thumb here is the time-worn mantra not to invest more money than you’re prepared to lose. And, especially when the asset class, itself, presents a market risk. If you don’t have much of a stomach for wild fluctuations in value, then that’s something to consider before buying Ethereum.
Other Key Considerations
• Largely unregulated: Ethereum exists in the same gray area as other cryptos when it comes to cryptocurrency regulations. Some exchanges are as regulated as they can be, considering that defining rules for cryptocurrency is a work in progress; while other exchanges are still primarily unregulated.
• Possibility of theft: Other risks to consider include the possibility of theft and other prevalent crypto scams.
• What about crypto forks?: Forks are complicated. In brief, there are hard and soft forks. If a blockchain experiences a fork, it means that there’s been a change in its protocol. Effectively, the network creates a new “chain,” and all users must upgrade to the latest software and new protocols. Essentially a change in rules, forks can happen at any time, and could cause some problems for Ethereum users who are caught unaware.
Ethereum and the Internal Revenue Service (IRS)
Finally, as discussed above, it’s crucial to remember that you could owe taxes on your Ethereum holdings. As with writing government regulations for cryptocurrencies, creating tax laws for our newest asset class, is an ongoing enterprise that will continue to grow and change along with the blockchain and crypto sector.
💡 Recommended: Crypto Tax Guide 2022
Has Ethereum typically been a profitable investment?
Historically, yes. Priced at $0.311 per share at its inception in 2015, ether (ETH) rose to its highest price of around $4,800 in late 2021. Ether’s return on investment (ROI) is almost 300% annualized, which means that early investors in ETH have nearly quadrupled their investment every year since the summer of 2014.
Ethereum has been profitable over time, but of course past performance is no guarantee of future results. And because of crypto’s extreme volatility, and ETH’s imminent transition to a PoS network, some experts are hesitant to speculate about ETH’s forward results.
Other experts think that Ethereum’s impending upgrade to a proof-of-stake network could make ETH even more appealing to investors, and sustainable for widespread use. On the heels of the merge (discussed earlier), some contend that Ethereum could grow in value by as much as 400% in 2022.
Can you buy just 1 ETH or even $1 of ETH, or do you need to buy more?
Yes, it’s possible to buy just one ETH. Buy as much or as little as you want. You can even buy a portion of an ETH in what are called fractional shares.
Is Ethereum likely to surpass Bitcoin?
The short answer is that nobody can know this answer precisely. Some experts, not dissuaded, have weighed in with 2022 ETH price forecasts that range from $4,000, $8,000, to more than $12,000 per share if the transition to Ethereum 2.0 is successful.
Another thing to keep in mind is that Ethereum and Bitcoin are not, as far as we know, rivals. They are completely different systems, whose needs are symbiotic. Bitcoin is the cryptocurrency, and Ethereum is the blockchain that cryptocurrencies, among other products, are built on.
As often happens in the capital markets, everyone — i.e., industry professionals, investors, crypto enthusiasts, and corporations — is waiting to see how everyone else will respond to the changes afoot at Ethereum.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.
This article is not intended to be legal advice. Please consult an attorney for advice.
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.