What is Ethereum?
Ethereum was the first cryptocurrency to introduce smart contracts. A smart contract is a tiny piece of code that lives on the blockchain, and it’s the technology behind the decentralized finance (DeFi) industry. A large proportion of decentralized applications are built on the Ethereum ecosystem, although Ethereum now has a lot of competitors that want to take some of its market share.
Where can you buy Ethereum?
You can buy Ethereum from almost any cryptocurrency platform. You can even buy Ethereum from some Bitcoin ATMs in the U.S. Let’s look at the differences between apps, exchanges and brokers.
- Cryptocurrency brokers: Several traditional stock brokers offer a limited selection of cryptocurrencies alongside their other products. These are a great option for people who want to add Ethereum to their investment portfolio without opening a new crypto exchange account. Be aware that most crypto brokers don’t offer external wallets so it may not be easy to withdraw or deposit crypto assets.
- Cryptocurrency exchanges: These are the most common way to buy and sell cryptocurrencies, and plenty of exchanges offer lots of ways to deposit fiat currency (such as U.S. dollars), reasonable fees, and a sizable list of tradable coins. On the downside, these exchanges are not subject to the same regulations as stock brokers.
- Cryptocurrency apps: Most cryptocurrency brokers and exchanges also have mobile apps to make it easy to trade on the go. You can also buy Ethereum using payment apps such as Venmo and Paypal.
What to look for when buying Ethereum
Buying Ethereum for the first time can be a little daunting. But there are a lot of excellent products out there, it’s just a question of finding the right platform for you.
Here are some key questions to help you find the best place to buy Ethereum.
1. What fees will you have to pay?
Broadly speaking, there are three types of fees to watch out for:
- Deposit fees
- Trading fees
- Withdrawal fees
We’ll break these down in more detail below. Just be aware that fees are rarely standard across the various trading platforms. For example, you might find a cryptocurrency exchange that offers free trading but charges you a lot of money to withdraw your funds.
Don’t be afraid to open a couple of accounts and experiment. But don’t deposit any money until you’re comfortable with the fee structure.
2. How will the platform secure your assets?
Cryptocurrency investment is an exciting world, but unfortunately it has attracted its fair share of bad actors. In addition to the risk of hacking, the collapse of FTX also demonstrated that we don’t always know what an exchange is doing with your money. Simply put, cryptocurrency exchanges don’t have the same investor protections and security as you’d find in banks and other financial institutions.
If a crypto exchange or broker is not transparent about its security systems, this should be a major red flag. Sometimes you’ll read that a company doesn’t want to disclose these details for security reasons, but that’s misleading. There’s plenty of information a trading platform can reveal without compromising its systems.
3. Are there any sign-up bonuses?
Some platforms offer sign-up bonuses for new investors. You might find a platform that gives you a small bonus when you start, or one that offers a bonus when you make a certain amount of trades or deposit a certain amount of money. While these are tempting, don’t let them drive your decision-making. It may be a great tie breaker, but there’s no point in signing up for the wrong exchange just because you want the bonus.
4. Is it available in my country or state?
Some cryptocurrency exchanges can’t operate in the U.S., and only a handful are licensed to operate in every state. For example, New York has some of the strictest crypto exchange regulation and will actively pursue rule breakers. As such, it’s good to check that the exchange you want to use is allowed to operate where you live.
5. Does it have all the features you need?
If you’re buying Ethereum for the first time, you’ll want an easy-to-use platform with plenty of educational resources. If you prefer mobile apps to web browsers, look for an exchange with a good app.
Other useful features include:
- The ability to set up automatic monthly transfers
- Good customer service
- An external wallet
We’ll talk about wallets in more detail shortly. If you’re an active Ethereum trader, you might also want advanced features such as limit orders and good charting tools.
6. Can I stake or earn interest on my Ethereum?
Last year, Ethereum moved to what’s called a proof-of-stake system, changing the way it validates transactions. It is part of a wider upgrade to make the popular blockchain more scalable, more sustainable, and more secure.
Without getting too technical, one impact is that investors can stake their ETH tokens to earn rewards. Proof-of-stake cryptos pay rewards to holders who are willing to tie up their tokens to contribute to network security. As a long-term investor, this is a great way to earn passive income from your Ethereum investment.
However, be aware that there’s a difference between staking and the crypto lend-earn products offered by some platforms. Some exchanges use the word “staking” for any kind of activity that will generate interest. But there’s a big difference. When a crypto earn platform offers high rates of interest, you don’t know what risks it is taking with your assets. And if it collapses, you could lose your crypto completely.
7. Does it have a wide selection of cryptocurrencies?
If you only want to buy Ethereum or Bitcoin (BTC), you won’t need an exchange with lots of tokens. However, if you see buying Ethereum as the first step on a longer crypto-trading journey, a long list of altcoins is a bonus. It’s worth understanding an exchange’s policy on adding new coins too — does it try to filter out potential scams or is it looking to list as many coins as possible?
Check out our cryptocurrency exchange reviews for more options.
