How To Invest In Ethereum - Step-by-Step Guide
Founded by Vitalik Buterin and Gavin Wood in 2015, Ethereum is an open-source decentralised blockchain with its own cryptocurrency denoted by the abbreviation ETH. Ethereum network has worked as a primary blockchain platform for launching and supporting other cryptocurrencies by executing smart contracts. The primary goal of the Ethereum blockchain is to turn the network into a global platform for decentralised applications and smart contracts. Currently, Ethereum 2.0 is in the transition from the proof of work (PoW) consensus mechanism to the proof of stake (PoS) model, learn more about The Merge or Ethereum 2.0 to know the latest.
If you’d like to learn how to invest in Ethereum in 2022, this guide will cover various steps involved in Ethereum investing strategy.
Invest in Ethereum in 3 Steps
Get an Ethereum Wallet
If you are looking to invest in ETH, the first thing you need to get is an Ethereum wallet. There are many types of wallets available for storing ETH including cold (hardware) and hot (software) wallets. In terms of features such as security, performance, and reliability, these wallets vary from each other. You need to find a wallet that offers the right balance of features for your investment needs.
Join an Ethereum Exchange
Once you have a wallet, you need to join a cryptocurrency exchange where you can purchase ETH. There are several platforms such as Poloniex, Binance, Coinbase and more where you can buy Ethereum. You will first need to deposit funds using fiat currency or crypto and then you can exchange it for ETH.
Invest in Ethereum
After you have chosen your exchange, you need to sign up. The exchange will ask for your basic information and verify your identity before you can invest. Then you will need to deposit the minimum seed capital in your exchange account. As soon as the deposit shows up in your account, you can purchase ETH coins by entering the amount you are willing to spend.
Investing in Ethereum Explained
Before investing in Ethereum, the first thing you need to do is get a secure Ethereum wallet. Wallet selection has to be carried out with care as you will need to consider several variables before you decide which crypto wallet fits your investment requirements. Some of the key factors that you must take into account include ease of use, security, customer service, backup, anonymity and control over the private key.
If you are going to store your ETH tokens for the long term, then a hardware wallet is the way to go. They offer the highest level of security as they remain offline. Top Ethereum wallets you can buy right now include Trezor, Ledger Nano S, and Ledger Nano X. However, if you want better access to your ETH tokens, then mobile wallets are a better option. They come in the form of smartphone apps and you can install them on your phone. Electrum, Atomic Wallet, and Edge are some leading Ethereum wallets.
You can also rely on desktop wallets which are installable programs and are available for both macOS and Windows operating systems. Bitmex and Exodus are examples of such wallets. If you want the right balance of security and accessibility to your Ethereum coins, then web or hot wallets are an option as well. Since they are always connected to the internet, you can access your digital assets without any hassle. They are often built into the cryptocurrency exchange you sign up for including Binance, Coinbase, and Coinmama.
For short-term investors, hot wallets make more sense since they will need to access their tokens regularly. On the other hand, if you are going to hold your Ethereum coins for a long period of time, then cold wallets that offer the best security at the cost of convenience make for a smarter choice.
One more method that has become increasingly popular in the last couple of years is peer-to-peer trading platforms. Here, you can find traders who are willing to sell you Ethereum and other cryptocurrencies and you can negotiate price, payment method and other transaction terms.
On cryptocurrency exchanges, you will have to go through personal identity verification as these platforms need to ensure compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations to ensure a safe and secure investment environment for its users.
Our guide helps you find the best Ethereum exchanges.
Where Can You Invest In Ethereum?
We conducted comprehensive reviews of some of the most popular investment platforms and have shortlisted a few that we believe deliver the ideal combination of features including regulatory compliance, user-friendliness, fees, reliability, variety of tokens, and other factors.
Exchanges and other platforms offer numerous payment methods which you can rely on to invest in ETH. Payment modes will differ from one platform to another, but the easiest and quickest method for amateur traders is credit or debit cards. Some of the top crypto exchanges like Binance or Coinbase offer this mode and it's quite easy to use. It will be like online shopping. All you will need to do is go to the fund or deposit tab and provide your debit or credit card information. Then transfer the money into your account. After the funds show up in your exchange account, you can start investing in ETH.
Exchanges will also enable you to transfer funds directly from your bank account. In the wallet balance section, you should select the deposit option and your preferred currency. Then choose the bank account section where you will be asked to add your bank account as you find yourself being redirected to finish the verification procedure before you can make any deposits and proceed to invest in Ethereum.
Ethereum Investment Strategies
There are several methods to invest in Ethereum that can ensure you don't miss a lot of opportunities of getting in. The following section highlights all the effective Ethereum investment strategies and their details along with when and how to use them.
Buy and 'Hodl'
What is it?
'Hodl' is an inside joke of the cryptocurrency world that simply means 'hold'. The strategy proposes that investors should 'hodl' their digital assets for the long-term so they can reap major rewards. Looking at the lifetime ETH ROI, you can understand why this strategy has been successful for many investors.
How to use this strategy
The ‘hodl’ strategy is quite straightforward. You will sign up on an exchange and buy ETH as described earlier and then hold your coins. Since it is a long-term investment strategy, you will need to be patient to acquire big gains. For instance, at the beginning of the year, ETH was trading well below $500, and at the time of writing, it's closing in on $1,800. Those who held their investment for the entire year now have made huge profits.
When to use this strategy
The best way to use the 'hodl' strategy is to get in when the ETH price is low and then hold onto it regardless of which way the market goes in the short term. At this moment, anything below $1,000 could be considered as low. Remember that the cryptocurrency market is highly volatile and throughout your cryptocurrency investment duration, the price of ETH will rise and fall not once but hundreds of times. That being said, in the long-run, ETH price can potentially attract more investors. For relying on this strategy, any moment could be the right moment. You just need some faith and patience.
Buy Fractional Ethereum
What is it?
Like many other cryptocurrencies such as Bitcoin, the Ethereum blockchain’s native currency, Ether, is also divisible. 1 Ether can be further fractioned into 10^18 units and each unit is referred to as 1 Wei. Buying a fraction of Ethereum means you are investing in a small amount of ETH. Fractional buying is the most popular way of retail investment as it allows you to buy ETH worth any amount, even if you have only a small amount of money spare. This way you can invest every month gradually increasing your stake.
How to use this strategy
The best way to use this strategy is to set a monthly savings goal and invest that amount in ETH. If you are a disciplined investor, you will be able to accumulate enough ETH coins over the long term. Just ensure that you are doing so with proper risk management.
When to use this strategy
This is an ideal strategy for beginners who are just starting to invest and cannot afford to commit huge amounts of capital. The strategy demands discipline and patience and if you are successful, you could build quite an investment portfolio for yourself.
Long Position on Ethereum
What is it?
Long position trading is when you bet on the fact that the price of ETH will go up. This can be done using leveraged trading which requires an understanding of cryptocurrencies and the digital assets market.
How to use this strategy
If you want to use this particular strategy, you will have to sign up on a broker platform and then select the amount you wish to trade. Then you will need to provide the amount of leverage and choose the price at which you want to enter the long position. If and when the price reaches that mark, your trade order will be initiated. If the price continues to rise, you have the option to close your position and retain your gains.
When to use this strategy
This strategy should only be used in a market that's demonstrating a bullish trend. When ETH price is going through a positive rally due to several factors, you can capitalize on that momentum. That’s why it is important to focus on market developments as it could potentially result in price appreciation.
Benefits of Investing in Ethereum
- Deflationary Currency – Ethereum like Bitcoin is a deflationary currency which means, in the long run, it doesn't lose value like fiat currency. Inflation reduces your purchasing power.
- Versatile Blockchain – Unlike Bitcoin, the Ethereum blockchain is highly versatile which means its token can’t only be used as an alternative currency but the network also supports a wide range of decentralised applications like ICOs, smart contracts and dApps.
- Global Transactions – Ethereum hasn’t witnessed the same adoption as Bitcoin but can be used as a payment method in international transactions.
- Autonomy – As the blockchain is decentralised, you don't have to deal with any central authority like the Federal Reserve or financial institution. You have total control over your assets.
- Anonymity – Holding ETH tokens and trading on the blockchain makes it quite difficult for hackers or any other person to identify you personally.
- Peer-to-Peer Transactions – As there is an option to directly trade with the other party, you don’t have to pay any service charges or commissions.
- Ethereum 2.0 Update – This is a major update to the Ethereum blockchain which has made the network more scalable, quick and convenient to use.
Disadvantages of Investing in Ethereum
- High volatility – Just like any other crypto, Ethereum also suffers from a volatile market. Traders and investors can lose their capital quickly if they are not minimising their risk.
- Beware of scams – As the cryptocurrency market is still in a young phase and a lot of people aren’t aware of the technology behind it, there are many scams that plague the crypto space.
- Mining is Not Environment Friendly – Currently, Ethereum is primarily mined by miners who require intensive computing power which is hazardous for the environment.
Other Ways of Investing in Ethereum
Apart from the methods mentioned above, there are other methods to invest in Ethereum as well. You can either go for in-person transactions where you meet the seller. Just ensure that you are conducting your negotiations in a safe environment. You can also purchase ETH through an ATM if you have one situated in close proximity. It is safe, quick, and affordable. You can go to the Ethereum ATM Radar website to find out the legitimate ATMs. One more option you could opt for is relying on PayPal. However, keep in mind that this cryptocurrency investment method isn't accessible globally. You will need to sign up and deposit funds into your account. Recently PayPal revealed that it would enable users to buy, sell, and store Ethereum.
Trade Ethereum on Leverage
Leverage trading allows day traders and short-term investors to invest more than they have in their account. Your capital is multiplied by a certain percentage and you can earn more profit. That being said, you have to be quite cautious as the bigger your leverage, the greater the risk of liquidation with trivial price movements. Leveraged trading is an effective way to place short term bets on price movements and get out with your profits quickly. This trading strategy can only be used through an online broker such as Plus500, eToro, Skilling, and more.
Invest in an Ethereum ETF
Ethereum ETF provides you with a straightforward and legal method to invest in the cryptocurrency. It's an investment fund that tracks ETH price and is traded on the conventional stock market. The value of the investment vehicle increases and decreases subject to the price of its underlying asset. It's a smart way to invest in ETH for individuals who have little awareness of the Ethereum market and don’t want to get involved in technicalities.
The Ethereum mining process is pretty similar to Bitcoin. There are transactional blocks which need computational power to evaluate the right solution. Technically, block's metadata is run by miners relying on a hash function that delivers fixed-length scrambled strings of characters that appear to be random. In the beginning, mining was quite simple to participate relying on GPUs, but as the hash rate has continued to go up with more and more individuals using the ETH network, mining has become a less profitable affair. The launch of ASICs or Application Specific Integrated Circuits made the use of GPUs obsolete.
As of now, mining is only profitable if you participate in large Ethereum mining pools, which you have the option to join and then you can get a share of the profits with other pool members. Cloud mining is also an alternative.
Frequently Asked Questions
No. Ethereum can be bought in fractions making it possible to buy even $10 worth of ETH coin.
It depends on the computing equipment you have and the cost of electricity in your region. For some individuals, it might be profitable.
It depends on the region or country you live in. If cryptocurrency investment gains are classified as taxable income in your country, you will have to pay your taxes. Otherwise, no.
Investing through regulated platforms can reduce the risk of fraud.
Ethereum investment platforms including brokers and exchanges comply with KYC and AML regulations to ensure there is no money laundering and other types of fraud on their platforms. This ensures a safe and secure investment environment for you.