The crypto markets have crashed, and crypto companies are bracing themselves for a long “winter of discontent” as the risk of further falls in the crypto market looms large. If you have been looking to invest in cryptocurrency and are not worried about recovering your investment any time soon, this might be a good time to get started.
The price of Bitcoin might still be making you a little wary, but there are alternatives like Ether (ETH), which are also popular. Ether is the native currency of the Ethereum blockchain platform that went online in July 2015 and is designed to be scalable, programmable, and secure, as well as decentralized.
Here’s a beginner’s guide to buying ethereum with a little background on the technology that makes it possible.
What is Ethereum?
Ethereum is a blockchain technology platform that allows users to carry out transactions over the internet without the need for a trusted central authority. Unlike the Bitcoin blockchain, which was created only to support the bitcoin cryptocurrency, the Ethereum platform was founded in order to leverage blockchain technology for the creation of diverse applications. Today, it is a popular platform for developers to build decentralized applications.
As with many other blockchain networks, Ethereum uses smart contracts, a contract where the terms of the agreement between buyer and seller are written directly into lines of code. The code controls the execution of the exchange, and the transactions are trackable and irreversible.
For instance, a contract can be written for the sale of a digital piece of art to the highest bidder at an online auction. When the deadline for the auction is reached, the program can request a cryptocurrency payment from the highest bidder and transfer the ownership of the art piece to the bidder after the payment has been received. All this can be done without the art owner or the bidder being known to each other.
Smart contracts have been used extensively for purposes of lending, borrowing, and financing in the cryptomarkets, a category that is now commonly known as decentralized finance or DeFi. While in use in other blockchain platforms, Ethereum was designed with smart contracts as native, which means they are easier to use in conjunction with the platform. Unlike traditional apps, Ethereum-based applications, called “decentralized applications,” or dapps, are self-executing, thanks to the use of smart contracts.
How much is Ether Worth?
Due to the wide range of applications of the technology as a platform, the value of ether has also soared over the years. Soon after its launch, ether’s valuation was hundreds of US dollars, and although it peaked above $1,000 in Jan 2018, it fell back soon for the next couple of years.
During the pandemic, the value of ether began to rise again, this time rising well beyond its previous peak to reach $4,600 in November last year. Since the beginning of 2022, along with other cryptocurrencies, ether has also been dropping value and even briefly went below the $1,000 mark in June before regaining some value again.
As with other crypto investments, ether is also prone to high market volatility, and investing in this space comes with its own risks — investors need to be aware that they can lose everything.
How to buy Ethereum with PayPal
If you are looking to buy ether, you may not have to look beyond your PayPal account. Ether is one of the limited cryptocurrency options that PayPal lets your purchase on its website. Depending on where you live, you may have to share some personal details with PayPal, such as:
- Name
- Physical address
- Date of Birth
- Tax Identification Number/SSN
before you can purchase the cryptocurrency.
Once that is done, PayPal also lets you spend your ether on products and services with merchants who are willing to accept it with their ‘Checkout with crypto’ option. Having said that, there are limited avenues where you can spend ether through PayPal, while the payment platform might even charge you payment processing fees for the convenience it is offering.
In line with the demands of the market, PayPal is now introducing changes in how ether and other crypto owners can store their cryptocurrencies. Earlier, all crypto coins had to be stored on PayPal’s wallet, a digital purse to keep your digital money safe. However, PayPal users will soon also be able to transfer their holdings to their private wallet, which needs a private key to execute transactions. The key is like a password that protects your wallet from unauthorized access.
You can also buy ETH with PayPal instantly using the eToro brokerage platform or through the LocalBitcoins site, which operates as an informal peer-to-peer exchange. Some users are willing to accept PayPal payments in exchange for their Bitcoins, which you can then convert into ether. You can also buy Ethereum with PayPal using the LocalCryptos peer-to-peer platform, on which some users will be willing to sell you their Ethereum in exchange for PayPal payment. However, keep in mind that these sites may not be available in your region or country and that the risk of fraud on these sites is much higher than using formal exchanges.
If you do not have a PayPal account or are looking for better and safer deals for buying your ether, you can also head over to a crypto exchange. Like an exchange market for stocks, a crypto exchange also lets people buy and sell their crypto holdings. As competition between exchanges intensifies, cryptocurrency enthusiasts can sometimes find good value for their money at these exchanges.
How to Buy Ethereum on a Crypto Exchange
Popular and trusted exchanges like Coinbase, Binomo, or Kraken are good places to begin your crypto investment journey, especially if you are a beginner. These sites offer a good mix of transaction fees as well as security measures to keep your ether holdings safe.
Do remember that cryptocurrency holdings are all recorded in a public ledger, and at any point, it is easy to know which wallet holds how much of the cryptocurrency. Hacking your wallet is the easiest way to get a hold of your ether, and since cryptocurrency markets are generally not regulated, there can be little legal recourse to regaining your lost funds.
Before you purchase ether, you will have to sign up for an account on a crypto exchange. This can be straightforward and generally requires you to share the following details with the exchange:
- name,
- date of birth
- residential address
- an email address with a strong password
Depending on where you live, you might also be required to share proof of identity, such as a driver’s license or social security number, and possibly the source of any funds that you will be using to finance your purchases.
Crypto exchanges can also be very selective about the fiat currencies they allow to be used for buying Ethereum. While the US dollar is widely accepted, if you are using a bank account located outside the US, you may have to convert your liquid holdings to dollars or use an internationally accepted card to fund your account.
On such occasions, tapping into your credit card can seem like a hassle-free option. However, it is important to note that banks can and do levy extra charges on your transactions when used to fund crypto exchange accounts. Also, given the volatility of cryptocurrency valuation, buying them on credit is not a very good idea.
How to place a Buy order for ether on crypto exchanges
Depending on the platform you have chosen, you may have to simply tap on the ether ticker or search for it from among other coin listings to purchase ETH. If you have some experience of buying stocks at an online stock brokerage, then you will find the ether buying experience not very different.
You need to fund your account with appropriate amounts to procure the desired ether coins. Like a stock brokerage Buy Order, you can choose to buy ether at prevailing market rates or set up a limit order where the exchange will assign ether coins to you if and when they reach a price you have set. In addition to this, there are also other buying and selling options such as stop-loss, take-profit, take-profit limit, and recurring orders that users can opt for while trading in ether.
An alternative would be to sign up for peer-to-peer exchanges and make your bid for ether. These exchanges allow users from all over the world to trade. However, while you might get an incredible deal, you are also at risk of being scammed.
Once your order is executed, it may take some time for the crypto coin to show up in your account since the transaction needs to be recorded on Ethereum. This can take anywhere between 15 seconds to five minutes, which might be a relief against Bitcoin, which can at times take a few hours. However, while most cryptos have some sort of transaction fee, users of ETH need to pay charges to confirm the transaction, something often referred to as ‘gas fees.’
What are Gas fees?
For a transaction to be confirmed in the public ledger, it needs to be worked into the blockchain. On the Bitcoin network, this is done in a decentralized way by solving complex mathematical problems to generate a hash. Users engaging in creating hashes are rewarded with Bitcoin for getting there first.
Ethereum also uses a similar system called ‘proof of work’ to confirm transactions, but instead of the network providing a fixed reward, the network’s users pay fees which are determined by how busy the network is. Gas fees can be thought of as compensation for the computing power needed to process and validate transactions on the Ethereum blockchain.
While this helps in keeping the platform free from those wanting to spam it, gas fees are the cost genuine users have to pay to keep it that way. So, when you carry out an ether transaction, you need to also specify how much ‘gas’ you are willing to spend on it to see it get confirmed.
The higher the price of gas, the faster a transaction will get confirmed since miners can see gas fees accompanying transactions and pick transactions that have the highest fees and work their way down to the lowest fees.
While this sounds like a decent bargain, the Ethereum network can get crazy busy, such as during an NFT auction, and you may be required to either defer your transaction or pay high gas fees to see it get confirmed, even though you are not participating in the auction.
Either way, once your transaction is confirmed on the blockchain, your ether will soon be credited to your digital wallet. Most crypto exchanges provide wallet services, which are akin to a digital bank account, where you store your money.
How to store ether
Since cryptocurrencies are decentralized, you can also choose to store your holdings in a wallet that is hosted by the crypto exchange or that is provided by a wallet service provider. While the former is a recommended option for beginners, as you get more accustomed to the cryptocurrency world, you will come across more pocket-friendly options to store your cryptocurrencies.
Moving to a wallet service might sound like a tough call to make, but thanks to smartphones, it isn’t that difficult. All you need to do is:
- Download the app of the service provider
- Create an account on the platform
- Store your private key somewhere safe
- Transfer your holdings to your new wallet.
The security of the self-custody wallet is still the responsibility of the service provider, so you do not have to worry about learning the latest trends in internet security to keep your ether safe. These wallets, however, are located online and are therefore known as ‘hot wallets.’ With hot wallets, there is always a risk of being targeted by hackers.
So, if you are looking for a self-custody wallet, pick a service provider with a good reputation for security in the market. With cryptocurrencies still largely unregulated, there is scant legal recourse to get back your altcoins if your account is hacked.
How to keep ether safe
To avoid the risk of the hot wallet being hacked, many cryptocurrency holders turn to offline or “cold” wallets. Unlike self-custody or hosted wallets, though, the responsibility for the security of the wallet lies solely with you. However, since the wallet remains offline, the likelihood of it getting hacked is also minimal.
To set up a cold wallet, you will need to
- purchase thumb-drive-sized storage hardware from reputed providers
- install the latest version of their proprietary software
- transfer your ether holdings to the cold wallet.
It is important to note that since cold wallets remain offline, you cannot use your ether holdings to make purchases from these wallets. To do so, you will first need to transfer ether back to a self-custody or hosted wallet and then use that wallet to make your purchase.
If your holdings are large enough, there are services that allow you to convert them to paper wallets, where the public and private keys are printed on paper that you can store in safe deposit boxes.
For those looking to trade their ether holdings on a regular basis, a mix of hot and cold wallets is recommended, where smaller holdings stay in hot wallets for easier trading while long-term holdings are kept offline, minimizing the risk of them being stolen.
Ether can also be used to buy other cryptocurrencies or non-fungible tokens.
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