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How to invest in Ethereum (ETH)

We explore 5 ways to get started investing in Ethereum

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Ether (ETH) is the second-largest cryptocurrency by market cap and is the native asset of the Ethereum blockchain and economy. While part of the same product, ETH and Ethereum are distinctly different – Ethereum is a blockchain network, and ETH is the currency used on that network.

When you “invest in Ethereum” you are really investing in the cryptocurrency ETH, rather than the blockchain network itself.

A quick guide to Ethereum

Ethereum is a global computer network (a bit like the web) that allows users to build, access and use decentralised software applications through the internet. Decentralised means that anyone in the world can build or use a website on Ethereum, without having to worry about interference from governments and third parties. This makes it more like an operating system, than just another cryptocurrency. As such, Ethereum is one of the major technologies being used in the transition from Web2 to “Web3” which is the latest buzzword being used to describe the next evolution of the internet.

ETH is the native cryptocurrency of the Ethereum ecosystem and is used to pay for transactions on the network, similar to paying a toll for using a road. This means that if you want to use Ethereum, you must own ETH. Furthermore, a small amount of ETH is destroyed with every transaction, which should make ETH more scarce and valuable over time as the supply reduces and demand increases.

Finder’s panel of fintech experts predicts that ETH is likely to hit $6,500 by the end of 2022, $10,810 in 2025, and $26,338 in 2030.

Therefore, it’s no surprise that ETH has been a major target for retail investors and institutions alike in 2022. This interest is partially driven by excitement around an upcoming event called The Merge, which is set to increase the demand for ETH while simultaneously reducing supply. As such, investors have plenty to prepare for when deciding when and how to invest in Ethereum.

Buy ETH through an exchange

  • Pro: Buy and sell ETH any time using familiar payment methods like bank transfer or credit card.
  • Con: You will need to learn how to use an exchange, which is very similar to purchasing stocks or other investments.

Cryptocurrency exchanges are the gateway to the crypto-economy and one of the easiest ways to purchase and hold Ethereum. They essentially combine the features of a trading platform and a crypto-bank, allowing you to buy, sell and trade cryptocurrencies as well as access crypto-financial services like lending, borrowing and payments.

Most exchanges are accessible to all experience levels and the experience is similar to purchasing stocks, ETFs and other assets. If you’ve never invested before and are looking for the most beginner-friendly experience possible, consider an exchange like Coinbase or Gemini which are tailored towards beginners. If you’ve got a bit of investing experience under your belt already, then consider Binance US, KuCoin which will offer you additional features and more advanced trading options.

A major advantage of using an exchange is that once you’ve purchased your ETH, you may also be able to store it in a crypto savings account to earn yield, which is an easy and convenient way to passively grow your investment.

Making a purchase

To purchase ETH on an exchange you will first need to register and then verify your account. Verification involves uploading a copy of some photo ID like a passport or driver’s license. You may also need to use a smartphone or webcam to take a selfie holding your ID.

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Once your account has been verified, you can link a bank account, debit card or credit card to transfer funds and make a purchase. Look out for exchanges that offer an “instant buy” service for the easiest experience, otherwise, you will need to spend a little bit of time learning how to use the spot market to place an order.

Risks of using an exchange

Cryptocurrency exchanges are the primary hub for trading cryptocurrencies, which also makes them big targets for hackers. When you use an exchange, you are trusting them to custody and take care of your funds on your behalf. This means that if an exchange were to be hacked, your money could be at risk.

While exchanges implement all sorts of security practices to protect your funds some of the work is still on you. Make sure verify your identity, enable two-factor authentication (2-FA) and be wary of phishing scams which often work by sending unsolicited emails asking you to log-in to an exchange (and sending you to a fake website that steals your data). While this may seem daunting, the reality is that most cryptocurrency users have never lost money due to an exchange hack. In the event of a hack, exchanges may also opt to cover losses from their own treasury in order to protect user funds.

After you buy

Once you own ETH you can leave it on the exchange for storage, or move it to a personal wallet for self-custody. Self-custody means that no one else can access or move your money on your behalf, giving you true ownership. This is different to a bank, which manages your money on your behalf and in can even prevent you from accessing it. Some cryptocurrency users believe that self-custody is a fundamental cornerstone of owning and using cryptocurrencies, but for everyday investors, this may not be the case and is totally up to you.

If you decide to keep your ETH on an exchange, then consider using one that allows you to earn an annual percentage yield (APY) on your investment. This typically works by lending your ETH to the exchange who lend it out to borrowers. Borrowers pay interest on the loan which is then awarded to you as a regular yield payment, paid in ETH. Check out our list of best crypto savings accounts for exchanges that let you both purchase and earn yield on ETH.

Buy ETH through a brokerage app

  • Pro: If convenience is your priority, then a brokerage app is typically the easiest way to invest in ETH and only takes a few minutes.
  • Con: Brokerage apps are less feature-rich than exchanges and limit what you can do with your ETH once you own it.

Brokerage apps such as Robinhood, SoFi, or Webull provide the most simple and straightforward way to invest in Ethereum. They are similar to using an exchange, however, they typically offer far fewer features and just focus on buying and selling. Some apps don’t let you withdraw your ETH either, which means that you are not able to move it to a personal wallet, to another exchange, or use it for its intended purpose within the Ethereum blockchain and network.

If all you want to do is buy ETH and hold onto it without any fuss, then a broker or app could be the right choice for you. They can be downloaded to your smartphone and set up within minutes. Just keep in mind that you will need photo ID ready to complete the account verification process.

Once you’ve purchased your ETH, you can move it into a personal wallet or into a cryptocurrency savings account, assuming the app lets you withdraw Ethereum to another address or service.

Buy an Ether ETF

  • Pro: If you have purchased stocks before this is an easier and more familiar way of investing in ETH that can also be done through a retirement account like an IRA.
  • Con: ETFs are more complex than just buying the asset outright and you need to be wary of management fees.

Exchange-traded funds (ETFs) offer a more traditional way to invest in ETH without needing to use a cryptocurrency exchange since ETFs are available through traditional brokerage and investment platforms.

There are several advantages to investing in ETH through an ETF

  • They can be purchased through traditional trading platforms like eToro, WeBull and SoFi.
  • ETFs and brokerages are subject to federal regulations, unlike cryptocurrency exchanges which are still largely unregulated.
  • Assets are managed by the ETF manager.
  • You can invest in cryptocurrency ETFs through a retirement account like an RIA which are otherwise prevented from investing directly into cryptocurrencies.

Cryptocurrency ETFs are complicated though. They vary in their exact composition and fees, which means that no two ETFs are identical. You could purchase an ETF that holds actual ETH coins, or one that holds stocks of companies that are related to Ethereum. Obviously, both of these are very different, which means you need to thoroughly research exactly what it is you’re buying when you purchase an Ethereum-based ETF.

Read more: Finder’s ultimate guide to cryptocurrency ETFs

Earn yield on your ETH through lending

  • Pro: Passively grow your investment through lending and earn regular yield payments.
  • Cons: Staking returns on ETH are not as lucrative as other tokens, and 32 ETH is required to become a full validator.

Investing is just as much about growing capital you already have, as it is about acquiring new assets. You can earn a yield on any ETH you already own through a number of methods, such as lending, staking and DeFi. The easiest method, which can be done through an exchange, is via lending, also known as crypto savings accounts.

These accounts allow you to deposit your ETH coins in return for an annual percentage yield (APY) which is paid out as additional ETH. Returns are generated by lending out your ETH to other users who pay interest on the loan, which is paid out to you as yield. Borrowers must deposit capital in order to take out a loan, which is used to protect your funds in the event of the borrower defaulting on the loan.

Returns of around 4% APY are common, although this number could rise as high as 15% once the Ethereum network upgrades to a proof-of-stake network, thus increasing the networks reliance on ETH coins.

Read more: The best crypto savings accounts.

Buy ETH peer-to-peer (P2P) from others

  • Pro: Greater privacy than using an exchange or broker with a nearly unlimited variety of payment options.
  • Con: Relatively higher risk of fraud than other methods with little legal protection.

You can buy ETH directly from individual holders without a crypto exchange or brokerage platform, albeit with substantially more risk since there won’t be a middleman to mediate in cases of fraud or disagreement. If privacy is highly important to you, then this is one of the few options remaining to purchase ETH anonymously.

Make sure that you buy your ETH from someone you trust or conduct the exchange in person, preferably in a public place in broad daylight. Furthermore, wait for at least 12 blockchain confirmations after the exchange. Remember that blockchain transactions are irreversible, so you will also need to ensure your address is correct before making a transaction. Try sending a test transaction with a small amount first, to ensure everything is working correctly.

Alternatively, there are also non-custodial P2P marketplaces like LocalCryptos that have escrow services that provide a safety net for both buyers and sellers for a fee. This may be a better option if you prefer to conduct the transaction online or can’t find a seller you can trust.

P2P platforms like LocalBitcoins and LocalCryptos boast of having the highest number of accepted payment methods, including WeChat Pay, Wise, M-PESA, Revolut, Western Union, and possibly hundreds more.

Mine your own ETH

  • Pro: A self-sufficient approach to investing in ETH.
  • Con: Requires a large investment in equipment and electricity to get set up. ETH mining is in the process of being made obsolete, so your days of mining ETH are already numbered.

Mining ETH is the process of contributing your computing power to help validate transactions in Ethereum’s proof-of-work (PoW) network in return for ETH rewards. Mining was once a lucrative way to invest in ETH, but today, buying specialised hardware in order to be profitable may not be worth it since Ether mining is no longer sustainable long-term due to the protocol’s planned transition into a proof-of-stake network which eliminates the need for mining.

Considering that mining will one day become obsolete on Ethereum, it is not recommended to invest in ETH through mining unless you have plans to use your hardware to mine other compatible tokens after the merge, when profitable ETH mining will become impossible.

Is Ethereum a good investment?

ETH’s value can fluctuate dramatically in times of market volatility, which is to be expected for a still-evolving digital asset that increased by 50x from under $100 to an all-time high (ATH) of nearly $5000 between 2020 and 2021.

ETH also still mirrors Bitcoin’s (BTC) price behavior quite closely. However, it’s generally more stable and resistant to price crashes than other altcoins, since it is the longest-standing and most mature layer-1 blockchain in the industry. This can be seen in the market cap share of ETH and other major altcoins.

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As you can see, ETH typically siphons a lot of the liquidity from other altcoins over time, even if the number of altcoins is perpetually increasing, which is a testament to Ethereum’s strong community of users, developers and investors. That being said, smaller-cap altcoins usually rise more during bull runs relative to ETH since they have more room to grow.

As the original smart contract blockchain, Ethereum has garnered incredible network effect over the years and acted as a springboard for many of the world’s biggest crypto projects since 2017.

When developers decide to build dApps, Ethereum is usually the go-to network thanks to its strong decentralization, broad ecosystem of open-source tools, applications, and APIs propagated by some of the greatest minds in the industry through more than half a decade of contributions and collaborations. CoinFlip founder Daniel Polotsky explains this very well in his Ethereum price prediction.

This is why many so-called “Ethereum Killer” layer-1 networks like Avalanche (AVAX), Binance Smart Chain (BSC), Fantom Opera, and Cronos Chain (CRO) as well as layer-2 solutions like Polygon (MATIC) ensure they are Ethereum Virtual Machine (EVM) compatible to help developers migrate with ease.

Ethereum’s EIP1559 upgrade, which “burns” ETH (see here), will also help to control the issuance of ETH and its scarcity. Burning refers to the process of permanently destroying a portion of ETH coins on each transaction. Coupled with increased staking rewards post-merge, could drive more investors to lock up their ETH and help reduce the circulating supply of ETH in the market and theoretically drive up its price based on the economics of supply and demand.

However, the upsurge in DeFi and NFT applications has aggravated Ethereum’s long-time Achilles heel – scaling – which the protocol has struggled to massively improve ever since Crypto Kitties exposed this in 2017. This poses a risk for investors as alternative layer-1 networks have already scaled and are being adopted, slowly eating away at ETH’s market share, especially when it comes to new areas such GameFi and NFTs, which require cheap and fast transacting.

Ethereum’s upcoming merge is critical to the future of the network. Not only will increase its efficiency, scalability and reduce transaction fees in the long run through the implementation of rollups and sharding, but its migration to Proof-of-Stake will make it attractive for ESG-based institutional investments, especially over rival Bitcoin, whose increasing energy consumption has made it a lightning rod for opposition from environmental groups and lobbyists.

3 facts to know about Ethereum before you invest

  • Ethereum is a global computer for running unstoppable applications. – At its core, Ethereum is an operating system that allows anyone in the world to run applications without censorship. This level of freedom has ushered in a breakthrough in digital finance and Web3 development.
  • Many tech giants and institutions support Ethereum. – There are several top 50, billion-dollar companies and institutions that are bullish on Ethereum, including Amazon, Microsoft, Epic Games, JP Morgan, Grayscale, Nasdaq, and Cisco.
  • Ethereum is becoming environmentally friendly. – Ethereum’s PoS network reduces its normal energy consumption by over 99%, making it one of the greenest cryptocurrencies on the market.

3 investing strategies for Ethereum

Dollar-cost averaging

Dollar cost averaging (DCA) is an investment strategy where you purchase coins in small increments over time. Instead of buying ETH in one sitting, you can buy some periodically, such as every month or week, in smaller quantities. This strategy helps in offsetting the negative impact of short-term market volatility, making it suitable for high-conviction investors.

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Trading

ETH, BTC, and stablecoins have the most versatile markets, as they are offered by most crypto exchanges and have the highest number of trading pairs. This makes ETH particularly suitable for speculative trading, which is a more advanced strategy that requires skills, experience, and higher risk tolerance.

Broadly speaking, there are two common types of traders: day traders and swing traders. Day traders read charts and use technical analysis to make several trades in a single day, while swing traders open positions based on the movements of assets in a span of a few days or weeks.

If you’re a beginner, the first thing you need to do is learn the craft. There are tons of free and paid courses available online. Our cryptocurrency trading guide is a good place to start.

No matter what type of trading strategy is used, there needs to be a proper entry point, exit point, and stop-loss in place. If a trade goes your way, you gain profits. If not, you’ll be at a loss.

Note that cryptocurrency trading is relatively riskier than traditional investing, and could end you up with huge losses if you do it incorrectly.

HODL

HODL (hold on for dear life) is the crypto version of the “buy and hold” strategy, where you buy ETH and hold it for a long period of time. This strategy is best used for high-conviction investments.

Our verdict

Investing in ETH has its own advantages and risks, but it is one of the leading cryptocurrencies in terms of market cap as well as total value locked (TVL) in DeFi, and it is the longest-standing layer-1 blockchain on the market with real-world applications, which is why it is seen as a “bluechip” crypto-asset. While competing layer-1 chains are sprouting up in all directions and growing their users, this hasn’t stopped Ethereum from continuing to dominate the smart contract market with tokens, dapps and NFTs.

As long as Ethereum is able to deliver on the bulk of its promises, especially the Merge and the scaling to 100,000 transactions per second, it will likely remain on top due to its network effect which could reward investors over the long term. However, if it doesn’t resolve its congestion and exorbitant gas issues in the next six months or year, another layer-1 network could potentially take its place.

This seems unlikely to many though. With improved transaction fees and speed incoming through innovations like the merge and sharding, as well as higher staking rewards, less supply, and the attractiveness of Proof-of-Stake to companies and individuals seeking to comply with ESG (Environmental, Social, and Governance) concerns, Ethereum should remain on top. In fact, many Ethereum supporters still believe that “The Flippening,” where ETH overtakes BTC’s market cap, is all but assured.

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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Written by

James Edwards

James Edwards was the global cryptocurrency editor at Finder. He coordinates a distributed team of journalists to help further Finder's mission of helping people make better financial decisions. He has been using Bitcoin since 2013 and began working in the industry in 2017. He takes pride in boiling down complex topics into language his parents can understand. His expertise has seen him called on to report at events such as TechCrunch Disrupt, CoinDesk Consensus and IBM Think and has coordinated a vast number of high-profile interviews with the industry's brightest minds. He is a regular contributor to Nasdaq, The Street and is frequently called upon for market commentary in Australia and abroad. See full profile

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