Guide to Investing in Ethereum

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, are hot on its heels. For aspiring crypto investors, one of the first questions that comes to mind is how to buy Ethereum.

Before learning how to invest in Ethereum, however, 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
•  What Investors Should Keep in Mind

What is Ethereum?

Ethereum is a blockchain based platform used to make peer-to-peer transactions and to build applications. It may be easier to think of Ethereum as an application marketplace, rather than a currency. “Ether” is the platform’s native currency, and it can be bought and sold by investors, like Bitcoin or other cryptos.

Ethereum is often referred to as a cryptocurrency, similar to Bitcoin, Ripple, or other types of cryptocurrency on the market. But when comparing Ethereum versus Bitcoin, for example, it’s necessary to note that the underlying technology and utility of the two cryptos is quite different.

What is Ethereum, exactly? It was created with the goal of giving programmers and developers a way to build decentralized programs. That is, a way to create applications without getting involved with the middlemen who generally control access to the apps—like how Google or Apple have control over their respective app stores.

Some deem Ethereum as valuable for two key reasons. One, it has intrinsic value (people are willing to pay for it with cash, for example). And two, it’s an actual platform with a degree of utility—which many other cryptos cannot claim. Today, it’s used by hundreds, if not thousands, of businesses and industries.

How to buy Ethereum

Getting started buying or investing in Ethereum isn’t difficult. While Ethereum itself is something of a complicated asset, buying or investing in it is more straightforward—particularly for investors who already have cryptocurrency among their assets, too. Here is a simplified, step-by-step guide to investing in Ethereum.

1. Get a digital wallet

Anyone serious about Ethereum investing will want to get a digital wallet, which allows cryptocurrencies to be safely stored. Digital assets can be vulnerable to theft, so it’s important to make sure that assets can be kept safe. Some wallets are made by the coin developers themselves, others are made by a third-party developer.

2. Create an Account on an Exchange

Likewise, investors will need to find and create an account on a crypto exchange that allows them to 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 third-party involvement that helps make sure transactions go through properly, and also allows for exchanging “fiat” currency (like US dollars) for cryptocurrency.

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, that simply means funding their account with good old dollars and cents (or fiat currency, in crypto parlance). The process is similar to funding a brokerage account in order to buy stocks or bonds. Fund an account, and the resources will be at hand with which to start making trades.

4. Start buying Ethereum

With a verified and funded account, investors should be ready to start buying Ethereum. While the specific steps to start buying or selling cryptocurrency will depend on the exchange, it’s generally similar to buying stocks through a brokerage.

No matter the exchange, investors will be in a position to start trading or buying Ethereum. Once the trades have settled and the transactions have been completed, remember to withdraw the assets into the aforementioned digital wallet for safekeeping.

Buying Ethereum: What Investors Should Keep in Mind

With the basics of buying Ethereum covered, it’s also important to discuss some of the other things investors should keep in mind. Most notably, that cryptocurrencies, and assets like Ethereum, are inherently risky investments.

While Ethereum, as a platform, is being used by a number of large companies, as an investment, it still has risks. It’s still an evolving platform, for one, and exists in the same gray area as others when it comes to cryptocurrency regulations. That is, there is none—so the government won’t be there to bail investors out if things go south.

Cryptos and related assets also tend to be highly volatile investments. So, if investors don’t have much of a stomach for wild value fluctuations, that is something to consider before buying Ethereum.

Other risks to consider include the possibility of theft , and that Ethereum could “fork”.

Forks are an entire topic in and of themselves. But in short, there are hard and soft forks, and it means that a change in protocol has been made to a blockchain network. Effectively, it creates a new “chain,” meaning that all users need to upgrade to the latest software and protocols.

Basically, a fork is a change in the rules. And they can happen at any time , and can cause some issues for Ethereum users who are caught unaware.

Finally, investors will need to remember that they may owe taxes on their Ethereum holdings—the last thing anyone wants to do is draw the ire of Uncle Sam!

The Takeaway

Ethereum was created to give programmers and developers a way to create applications without going through third parties who control access to the apps. But while its origins may be different from Bitcoin or other cryptocurrency, its appeal to investors is much the same.

Is Ethereum a good investment? There’s no way to answer this question for any investment, Ethereum or otherwise. The answer depends on an individual investor’s goals and the asset’s performance over time.
If you’re ready to add Ethereum to your portfolio or get started building one, SoFi Invest® can help you get started.

Start investing in cryptocurrency with SoFi.



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