You may have seen the term 'Ethereum' in the crypto news headlines many times when the crypto market rises or falls. Or perhaps you may have heard about it because it is the second most popular cryptocurrency after Bitcoin. However you have heard about it, you might be curious about what Ethereum is. Ethereum is one of the top two cryptocurrencies (the first being Bitcoin) that crypto experts recommend to beginners when it comes to crypto investment.
Let's dive deeper into Ethereum and learn more about Ethereum investment.
What is Ethereum?
Ethereum is the second-largest cryptocurrency after Bitcoin, with a market capitalization of over $331 billion. The multiple uses of Ethereum create a much larger learning curve for beginners as compared to Bitcoin. Unlike Bitcoin and rival currency Litecoin, Ether (ETH) has been accepted by many big companies and startups as a medium of exchange or transactions.
Ethereum is an open-source blockchain that allows people to construct solutions. It enables users to build decentralized apps (DApps) while Ether (ETH) plays a key part in the process. Ether is the native cryptocurrency of the Ethereum blockchain that enables all the operations on the network. It primarily serves two purposes, the first being as a store of value that acts as money and can be used for transactions. Secondly, It acts as a highway for decentralized finance.
Because of its unique and multiple abilities, Ethereum attracts all kinds of attention, ranging from finance to real estate, to investors, software developers, hardware manufacturers, and more.
How to buy Ethereum?
Investors can purchase Ether as a long-term investment, hoping that its value will rise over time. But before you make any investment, keep in mind that cryptocurrencies are highly volatile and risky investments, whose market value fluctuates significantly. Buying or investing in Ethereum is a simple process. Here is how to get started with Ethereum investment:
1. Choose the right crypto exchange platform: The easiest and most popular way of acquiring Ether is through a crypto exchange platform. It is a platform where buyers, sellers, and investors are present and trade crypto. Not every exchange lists every cryptocurrency on its platform. But as Ether is the second most popular and largest cryptocurrency by market cap, almost all crypto exchanges have Ether on their list. So, finding a crypto exchange for investing in Ethereum is a simple task. Before you decide on any exchange, there are some factors that you need to consider.
Do thorough research on the exchange that you are considering. Verify its authenticity and check whether it accepts currency that you want to trade or not. See to it what kind of exchange the platform offers, whether it's a fiat exchange or a cryptocurrency to cryptocurrency exchange (C2C). As Ethereum is one of the largest cryptocurrencies, investors can easily trade Ethereum on the fiat exchange. If you want to trade multiple currencies or want to convert other currencies into Ethereum, you should go for a C2C exchange. Many investors use multiple accounts with both a fiat exchange and a C2C exchange.
Another aspect to consider while choosing a crypto exchange is the credibility of the exchange platform. As you are aware of the fact, cryptocurrencies are highly unregulated with rapid innovation. This creates a great market opportunity, but on the flip side, it also increases the risk of fraudulent activity. So it is important to check the credibility of the exchange that you choose. Some popular and leading exchanges, like Binance and Coinbase, are considered more credible.
Also, consider the registration process, which varies from exchange to exchange. Some exchanges require significant personal information and identification documents for registration, while others have a simple registration process. Exchanges that initially require less information for registration will later require additional information to perform certain activities, like expanded withdrawal limits. Also, some exchanges' interfaces are complex, while others have simple purchase interfaces, but they charge higher trading fees.
Another thing to consider while choosing an exchange platform is whether or not they offer a crypto wallet to store your crypto assets. Most exchanges offer crypto wallets, but if yours doesn't, you will have to get one of your own. Some platforms which are generally used by beginners, such as CoinDCX and WazirX, have a simple crypto purchasing process, but they come with a hidden cost. Using this crypto platform means you will have to trade crypto within the platform you buy it on. It cannot be used for online payments, nor can it be withdrawn to store it in a third-party wallet. What you will have to do is to cash out of that exchange and rebuy it on another crypto exchange to put it in a separate wallet.
So, these are the points that you must consider while choosing an exchange platform for you. Some of the leading exchange platforms that you may consider are Coinbase, Kraken, Bitstamp, Gemini, Binance, and Bitfinex.
2. Create your account: Once you decide on the exchange you want to use, the next step is to create an account. Account creation is similar to opening an account with a brokerage platform. You will be required to share some basic details like your name, address, social security number, specified forms of identification, and more.
The final part of account creation is account verification. It can be done in one or more ways. Here, you will be required to upload some documents to verify your identity. Verification also ensures that your account complies with regulatory policies. The verification process may take anywhere from one hour to potentially a day or two, depending on the exchange you are using.
3. Fund your account: Once you successfully create your account on the exchange platform, the next step is to fund your account. If you are using a Fiat platform, funding your account becomes relatively easy. Simply transfer the funds from your bank account or via debit card or net banking. When choosing a funding method, review the trade fees that vary based on the method. For instance, CoinDCX does not charge any fees for wire transfers but charges a trade fee of 0.5% on net banking.
Funding your account on the C2C exchange is slightly more difficult. This type of exchange platform requires you to transfer cryptocurrency by code from one location to another. Among all the cryptocurrencies, Ethereum is one of the most popular depositing currencies for many C2C exchanges, which makes the transaction easier for you. Code transfer typically takes up to one hour to complete.
When it comes to funding your account, it is essential to weigh your risk tolerance level. The crypto market is highly volatile, and the prices of cryptocurrencies rise and fall significantly. Even a statement uttered by a famous personality can have a huge impact on crypto prices. For instance, when Elon Musk announced that Tesla would no longer accept payments made with Bitcoin, the coin's value tumbled by 15%. However, Ether has had impressive returns in the past, but it has also witnessed significant crashes, sometimes in astonishingly very short periods. Notably, the price of Ethereum fell from nearly $4,000 per coin in May 2021 to less than $1,900 in June 2021. So you can see that the value of your hard-earned money may become zero in no time. That is why it is essential to consider your risk tolerance level. Invest only the amount that you can afford to lose.
4. Buy Ethereum: Unlike the stock market, mutual funds, or exchange-traded funds (ETFs), which are limited by market hours and days that close at certain times such as weekends and holidays, crypto markets work very differently. Since they are decentralized currencies, you can trade at any time.
Each exchange has a different interface for purchasing Ethereum, but generally, you need to enter the ticker symbol-ETH-in the buy field of your exchange and enter the amount you want to invest. If you don't have enough money to buy a full coin, or depending on your risk tolerance level, you want to invest less, you can buy a fraction of one coin. For instance, if the price of one Ethereum is $2,000 and you want to invest only $100, it means you are purchasing only 5% of one Ethereum coin.
5. Store your Ethereum: After purchasing Ethereum, you have to store it. While some exchanges offer their own wallet for crypto storage, many people prefer to store their investment outside of the exchange platform to save it from hacking or any other digital threat. However, some major exchanges do insure their clients' assets and store their investments offline to prevent massive theft.
But for your peace of mind, you can move your investment to a safer storage location. Digital wallets provide extra security, and you can choose one of the two types of third-party wallets:
- Hot Wallet: A hot wallet is connected to the internet and is accessible through a computer or smartphone. They are usually offered by crypto exchange platforms at no cost. If you prefer to put your crypto assets outside of the exchange platform, you can use other hot wallets. As hot wallets are connected to the internet, some higher risk of security breaches will be associated with them.
- Cold Wallets: A "cold wallet" is an external device that stores the private keys of users offline. An offline wallet eliminates several threats and protects your wallet from hackers who infect people's devices with malware to access their keys. Malware is software designed to gain unauthorized access. Cold wallets are safer, but you will have to connect them to the Internet when you want to access your crypto. So it makes sense to use a cold wallet if you own a significant amount of Ethereum or other cryptocurrencies.
The Ethereum network provides numerous development opportunities, and people regard Ether (ETH) as one of the most promising currencies, even more promising than Bitcoin. It is also backed by multiple Fortune 500 companies and has been adopted by multiple financial institutions. Because of its multiple utilities and other beneficial reasons, investors are rapidly adding Ether to their portfolio.
Ethereum is one of the well-known cryptocurrencies, but that does not mean it is right for you. Before you make any investment in a highly volatile market such as cryptocurrencies, make sure you have done a thorough research and have well-managed finances. Invest only that portion of your money in Ethereum and other cryptocurrencies, losing which won't give you much stress.