4 Steps to Safely Buying Ethereum
by Emma Newbery | Updated July 30, 2021 - First published on May 9, 2021
Ready to buy Ethereum? Here's how to get started.
As you venture into the world of cryptocurrencies, you'll quickly come across Ethereum. It's the world's second-biggest cryptocurrency, and it's faster and more adaptable than its big sibling Bitcoin.
Ethereum is a programmable blockchain. Blockchains are like super--sophisticated databases that are difficult to tamper with -- cryptocurrencies like Ethereum and Bitcoin both use blockchain technology.Ethereum is designed so developers can use it to create new coins. It also runs smart contracts or self-executing contracts, which are small pieces of code that let people set up automated legal agreements that don't need a middleman. (For example, a smart contract can automatically push through a transaction without human intervention, depending on the terms of the agreement.)
The main risks when you buy any cryptocurrency are volatility, hacking, theft, and scams. The following steps will help reduce these risks so you can safely buy Ethereum.
1. Decide how much Ethereum you want to buy
When you see headlines about huge jumps in prices, it can be tempting to invest every cent you can get your hands on. But what would you do if that currency failed tomorrow and you lost it all?
The values of cryptocurrencies can increase and decrease dramatically. That's why it's advisable to only invest money you can afford to lose. Try to invest for the long term so you can ride out any major dips. If the price of Ethereum falls, you don't want to be forced to sell your assets at a loss because you need the cash.
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Research Ethereum and decide if it fits well with your overall investment goals. Ideally, your crypto should be part of a wider portfolio that balances higher risk investments against safer ones.
2. Find a secure cryptocurrency exchange or brokerage
Almost all cryptocurrency exchanges will sell Ethereum since it's such a popular coin. If you haven't bought crypto before, find an exchange that accepts fiat (traditional) money, such as U.S. dollars.
On our list of top cryptocurrency exchanges, you'll find a mixture of brokerages and exchanges. Some brokerages, like Robinhood, let customers buy crypto alongside their other stock market offerings. In contrast, exchanges are solely focused on crypto -- usually with a wider selection of coins and additional functionality.
Look for one that meets your needs. If you already hold stocks and plan to buy and hold Ethereum, your existing brokerage might be able to help. However, an exchange may make more sense if you plan to trade a selection of coins and want to move your assets into a wallet. (We'll discuss these shortly.)
Check the security credentials carefully. Where does the platform keep its assets? Does it have insurance? Keep in mind that while stock brokers have SIPC insurance to cover investors in case the brokerage fails, crypto exchanges do not.
3. Create an account, deposit money, and buy your Ethereum
When you create an account, you'll probably need to confirm your identity before you can deposit funds. You can usually do this by uploading an image of your passport or ID. Make sure you choose a secure password and enable two-factor authentication to safeguard your account.
Next, you'll need to deposit money. Depending on the platform and your bank, you may be able to transfer money directly from your bank account. You may also be able to pay by credit or debit card, but this often comes with an additional fee. There are several factors that impact the time it will take, including the exchange, your bank, and your payment method.
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Once your cash arrives, you're ready to buy your Ethereum. Every exchange has some kind of "Buy crypto" option. From there, you can fill in the amount you want to spend and check how much Ethereum you will receive. Congratulations, you now own Ethereum!
You will need to pay taxes on your crypto activities, so make sure you keep a record of your purchases.
4. Consider a wallet
You can keep your coins with the exchange or brokerage where you bought them. These days, reputable exchanges store the majority of assets offline, which makes them hard to steal. The danger is that hackers have successfully targeted exchanges in the past. And, unlike money you hold in a bank, it's very difficult to recover any crypto that's been stolen. That's why many crypto enthusiasts keep their coins in wallets.
If you don't want to keep your coins on the exchange, you'll need a cryptocurrency wallet. Digital currencies have keys that are a bit like your bank account number and PIN. A wallet helps keep those keys secure -- and keep your assets safe.
There are two types of wallet:
- Cold wallets: Cold wallets are not connected to the internet and are usually a piece of hardware you can buy for $50 to $150. These are generally considered the most secure way to keep your crypto.
- Hot wallets: Hot wallets are connected to the internet and give you easy access to your funds. They are free to install but may charge transaction fees if you want to move your currency. These are a good way to store crypto you may want to access day-to-day, just as you'd keep some cash in a normal wallet.
Finally, whether you keep your money in a wallet or on an exchange, be wary of scams. Don't trust anybody who calls and asks you to share your account information. Always type website URLs directly into your browser rather than clicking on links you receive by email. And if you're downloading an app, double check the name is spelled correctly and the logo is right. You don't want to put your details into a fake app.
Once you've set up an account, you'll find it's easy to buy Ethereum and many other cryptocurrencies. From here, it's up to you -- you can trade it, use it to buy NFTs, or hold it for the long term.
About the Author
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Emma Newbery owns Bitcoin and Ethereum. The Motley Fool owns shares of and recommends Bitcoin.