How To Buy Ethereum
Ethereum is the second largest cryptoasset by market capitalization. As the underlying blockchain for many of the highest volume crypto projects such as uniswap and compound, its token ether is one of the fundamental cornerstones of DeFi. Ether (ETH) therefore can be purchased almost anywhere were crypto assets are being sold.
Step 1: Choose an exchange
Nowadays, there are numerous platforms to buy ether from. Also, more and more banks and banklike apps offer some sort of ‘buying’ that lets you participate in the price development of the largest crypto assets. But, if you really want to own your ether, you should avoid most of these offerings. Rather, choose one of the top crypto exchanges to buy ether from. Most of them operate worldwide and are available in almost any country. Examples are: Binance, Bitstamp, Kraken, Coinbase and Huobi.
For simply buying ether, all of these exchanges do the job just fine for you. They allow for fiat deposits via bank transfer or credit card and offer a user friendly, easy to use interface. All of them have their own mobile apps, too. Differentiating factors are fees and advanced functionalities. If you are planning to invest significant amounts into crypto, taking a closer look into the exchanges’ fee structure can save you real money. Binance and FTX for example charge significantly less than Bitstamp or Coinbase. Binance and FTX also offer derivatives trading, which allows for leverage or short positions.
Keep in mind that cryptocurrencies and exchanges are mostly unregulated and evolve at a rapid pace. This can create great market opportunities for investors, but it also increases the risk of fraud. There are several cases of exchanges that have been hacked or where founders disappeared with large amounts of deposited money. Thus, make sure to choose a well established, trusted exchange with a spotless track record. Some exchanges now insure their customers’ deposits against hacks, and others have established security funds to reimburse customers should such an incident occur.
Step 2: Create an account
Once you have identified an exchange that fits your needs, the next step is to open up an account. The sign-up process is straightforward and similar to that of an online brokerage. You will be asked to provide your information such as name, address, an official public document (passport) and a proof of address (utility bill). Usually, this process takes only a couple of minutes.
Once you have the documents submitted, it will take between a couple of minutes and 1-2 business days for your account to be verified and fully operational. Be sure to enable 2-factor authorization and other safety features (such as delayed withdrawals) when opening the account. This ensures that unauthorized access to your account and funds is significantly more difficult.
Most exchanges offer some sort of sign up or referral deal, so make sure to profit from them when opening up an account. Your colleagues or users on internet forums are more than happy to give you their referral codes, so both of you can enjoy a sign-up reward.
Step 3: Deposit currency
Next, you’ll need to deposit funds into your account. Most large exchanges allow for bank transfers and credit card payments. Fees for depositing and withdrawing fiat currencies differ, depending on the exchange’s fee structure and location. Bank transfers are often free of charge, while credit card payments are subject to a hefty fee. As bank transfers can take from several hours up to 2 business days and credit card deposits are instant, the extra fee can be worth paying depending on the urgency of your purchase and/or the market opportunity. Generally, exchanges have a very low minimum investment amount, meaning you can start trading with as little as ~$20.
All exchanges also allow for deposits in cryptocurrencies. Should you already possess cryptocurrencies, such as Bitcoin, in a wallet or on another exchange, you can then also send these to your account. But, as mentioned above, sending your crypto assets from banking apps and services is in most cases not possible, because although you have a legal right to these assets, you are not in possession of the private keys needed to send them on to another wallet of yours.
Step 4: Set a price target and buy
Once funds have been deposited into your account, you are now ready to purchase ether. As known from traditional stock investing, there are different order types you can use. For an instant purchase of ether, choose the market order type (default) and the amount you would like to buy. The exchange will purchase ether for the current market price, usually within seconds.
But as crypto markets are subject to high volatility, it often makes sense to observe the market and take a look at ether’s price developments during the last couple of days and weeks. If the price has strongly increased, it may be smart to set a limit order type with a purchasing price a few percent lower than the current market price. Thereby, you can use the asset’s volatility for your own advantage and likely get a lower purchasing price.
If you are planning to purchase ether on a regular basis or for large amounts, it can be reasonable to follow what is referred to as dollar-cost-averaging. This strategy follows the rationale that it is best to purchase an asset on a predetermined schedule, e.g. every first day of each month, for a fixed amount. Thereby, you can smoothen the asset’s short term volatility and build up a position with a more averaged purchasing price.
Step 5: Withdraw to wallet and keep safe
Once you have purchased ether, you should withdraw it to your personal wallet to store it safely. As exchanges are more vulnerable to hacks and fraud, it is generally highly recommended to do this in a timely manner. Exceptions are traders, who plan to divest their positions again in a matter of hours or days.
As Ethereum gas fees have repeatedly spiked very high during the last few months, a transaction to a wallet can prove economical nonsense for small amounts. If the transferred amount is smaller or similar to the paid gas fee, withdrawals don’t make sense.
Some exchanges offer their own wallets, which let you transfer money from their exchange to such a wallet and vice versa at almost no cost (e.g. Coinbase wallet or Binance Chain wallet). For smaller investors such an arrangement can be useful to save transaction costs.
How to buy Ethereum with a credit card
For investors daunted by the crypto exchanges and simply wanting to buy ether with a credit card through a banklike service, there are several options as well. Services like Revolut, N26, Swissquote, eToro, RobinHood, Bitwala and others are now offering the ‘purchase’ of cryptocurrencies on their platforms.
But be aware: Most of these companies won’t allow you to send and receive cryptocurrencies to a wallet. Rather, you either buy crypto assets in the form of certificates, which simply let you participate in their price developments. Or the service stores the purchased coins for you, meaning you are not in possession of the private keys, even though you legally own the asset. For users not minding being exposed to this third-party risk, these services offer a convenient alternative to participate in the world of crypto assets.