While Bitcoin is the top cryptocurrency based on the value of its coins in circulation, Ethereum is no slouch. With a total value of over $230 billion, it’s the second biggest cryptocurrency by market capitalization. Here’s how to get started buying Ether, the official name of the token that runs the Ethereum platform.
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How to Buy Ethereum
Investing in Ethereum may be easier than you think. Here’s how to get started in just five steps:
1. Determine Your Level of Risk
There’s no getting around it; buying Ethereum can be a gamble. While all investments have some risk associated with them, cryptocurrencies are especially vulnerable to price fluctuations. Just think about the impact a couple of hundred characters can have on crypto pricing: After Elon Musk tweeted that Tesla would no longer accept Bitcoin as payment, for instance, the coin’s value tumbled 15%.
Although Ether has had impressive returns in the past, it’s also had some significant crashes, sometimes in astonishingly short amounts of time. Notably, it went from a high of almost $4,000 per coin in May 2021 to less than $1,800 in June 2021. If you had bought in at its high, you’d be sitting with half that value just a month later. That’s some pretty extreme volatility.
That’s why it’s important to consider your risk tolerance along with the diversity and stability of the rest of your investment portfolio before buying Ether. Experts recommend that you never invest more in crypto than you can afford to lose.
2. Choose a Crypto Exchange
Buying Ether is a little more complicated than just buying stocks or mutual funds through your current brokerage account. Cryptocurrencies aren’t traded on major exchanges like the New York Stock Exchange (NYSE), and many brokerages don’t offer crypto investing.
To buy crypto, you have to first create an account on a crypto exchange. Practically speaking, it’s just like the brokerage platforms you may be more familiar with: Crypto exchanges allow buyers and sellers to exchange fiat currencies—like dollars—for cryptocurrencies like Ethereum, Bitcoin or Dogecoin. If you don’t already have a crypto exchange in mind, take a look at our list of best cryptocurrency exchanges to find the one that’s right for you. Though some exchanges’ trading platforms get complex, most offer a simple purchase interface for beginners, though it may charge higher fees than their trading platform.
A couple of key points: When choosing an exchange, make sure it offers a crypto wallet to store your investments. The vast majority do, but if yours doesn’t, you’ll need to get one of your own.
And if you’re a true beginner, you can always use a platform like Robinhood or Cash App. This will greatly simplify the crypto purchasing process for you, but it comes at a hidden cost: You can’t withdraw your Ethereum investment to put it in a third-party wallet or use it to pay for online purchases. Using one of these simplified platforms will mean your crypto can only be traded within the platform you buy it on. So you’d need to cash out of that platform and then rebuy it on a crypto exchange to hold it in a separate wallet.
3. Fund Your Account
Before you can buy Ethereum through a crypto exchange, you have to fund your account. In most cases, you’ll deposit money from a bank account, like your personal checking or savings account. You can also generally complete wire transfers, use a debit card or deposit money from PayPal.
When choosing a funding method, review the crypto exchange’s fees; they can vary based on the method.
One warning: Some platforms allow you to buy cryptocurrency using a credit card. While that may seem tempting, credit card companies generally consider cryptocurrency purchases to be cash advances. Depending on the card that you have, you might have to pay a higher interest rate and cash advance fee on top of the crypto exchange’s fees.
4. Buy Ethereum
When you’re buying stocks, mutual funds or exchange-traded funds (ETFs), you’re limited by market hours. For example, Nasdaq’s trading hours are 9:30 a.m. until 4:00 p.m. ET, and the exchange is closed on weekends and certain holidays.
Cryptocurrencies like Ethereum work very differently: Because they’re decentralized currencies, you can buy and sell them around the clock.
To purchase Ethereum, enter its ticker symbol—ETH—in your exchange’s “buy” field and input the amount you want to buy. If you don’t want to buy a whole Ethereum token or don’t have enough money in your account for a full coin, you can purchase a fraction of one.
For example, if the price of Ethereum is $2,000 and you invest $100, you will purchase 5% of an Ether coin. This is just like when you purchase a fractional share of a stock.
5. Store Your Ethereum
After your purchase of Ethereum has been processed, you have to store your cryptocurrency. While some platforms will store it for you, some people opt to store their investments themselves to reduce the likelihood they will lose their crypto to a hack. This is understandable, but it’s also important to note that most major exchanges do insure their clients’ holdings and often store the majority of their assets offline to prevent massive theft. What’s more, historically exchanges that have been hacked have reimbursed any losses.
But if you want peace of mind surrounding your crypto, you can choose to move it to one of two types of third-party wallets:
- Hot Wallet: A hot wallet is connected to the internet and can be accessed from a computer or smartphone. They’re convenient and are usually provided by cryptocurrency exchange platforms at no additional cost, though you can also use your own if you’d prefer having your crypto off of the exchange. However, because they’re still connected to the internet, they’re at a higher risk of security breaches.
- Cold Wallet: Cold wallets, meanwhile, are external devices completely disconnected from the internet. Depending on the type you choose, they usually cost between $50 and $200, though there are even more expensive versions available. While cold wallets are less convenient than hot wallets—you have to manually connect them to the internet each time you want to access your crypto—they’re safer and may make sense if you own a significant amount of Ethereum or other cryptocurrencies.
How to Sell Ethereum
To sell your Ethereum, simply head back to your crypto exchange and enter the amount you want to sell.
If you’re selling a substantial amount of crypto, though, you may want to consult a tax professional. Despite its decentralized nature, crypto is taxable in the federal government’s eyes. Your profits from the sale are typically subject to capital gains taxes and can significantly affect how much you owe the IRS come tax time.
Should You Invest in Ethereum?
Ethereum is extremely popular, with over 116 billion coins currently in investors’ hands. But just because it’s one of the more well-known cryptocurrencies doesn’t mean it’s right for you.
Before buying a volatile investment like Ether, you’ll want to make sure you’ve done your research and your finances are in good shape. Ideally, you should have a large emergency fund, be maxing out your retirement accounts and have minimal debt. Even if you can check all those boxes, it’s important to diversify your portfolio, so only a portion of your investments should be in Ethereum and other cryptocurrencies.