Ethereum, second only to Bitcoin in terms of global market capitalization, has seen its fair share of ups and downs since launching in 2015. Yet, Ethereum has recently gained traction amid a surge of interest in the crypto space overall, reaching an all time high of $4,403.93 on October 29th.
- What exactly makes Ethereum so valuable
- How and where do you buy it
Here are some points to ponder when it comes to Ethereum, as well as some easy ways to buy Ethereum (or other cryptocurrencies) if you decide the time is right for you.
The investment potential of Ethereum
What gives Ethereum its worth?
When you buy Ethereum, you are technically converting your US dollars (or native currency) into ETH, the currency of the Ethereum blockchain. To use the Ethereum blockchain (which includes sending ETH as a form of payment or using an Ethereum-based application), you’ll need ETH to pay a transaction fee.
So, what are your options on the Ethereum blockchain? While the technology is still expanding — Ethereum can now be used to run “decentralized applications,” or dapps.
Dapps essentially eliminate the middleman in industries where middlemen have traditionally existed, instead relying on “smart contracts” that run on Ethereum. To use these applications, you’ll need ETH to cover the cost of “gas” — the amount of computing power required to run the application.
Dapps include the following:
- The option to buy insurance without dealing with an insurance company (Sign me up!)
- Online payments made without the use of a payment processing company (Goodbye PayPal)
- Transfer money worldwide without paying high bank fees or waiting 5 business days for a wire
- Streaming music in which the money goes directly to the artist rather than a streaming platform or record label
- The ability to mint, buy and trade NFT (Non-Fungible Tokens) art and collectibles
- Gaming
- Video, think decentralized alternatives to Google-owned YouTube
- Decentralized finance (DeFi) for much lower fees on things like auto or home loans
- Social media, no centralized authority controlling the conversation or monetizing your profile
- Search, with total anonymity and no central authority monitoring your online behavior
Sounds great, but a little overwhelming, right?
To put it simply, when you invest in Ethereum, you’re betting that people will continue to adopt and use new Ethereum-based technologies like the ones listed above, potentially driving demand for Ethereum — and its market value — higher.
How comfortable are you with risk?
Cryptocurrencies are dominating the news, but if you’re looking at them as an investment, they’re still a highly volatile alternative asset. In general, it’s a good idea to treat them as such in your portfolio.
With Ethereum, there have been crazy price swings over the years. If you are prone to panic selling when the price dips Ethereum’s potential for volatility may make it unsuitable for you.
Red flag waving
Just as you would thoroughly research a company before investing to look for red flags, you should do the same with cryptocurrencies.
One cause for concern, besides market volatility, are the transaction fees paid on Ethereum, which also hit a recent all time high.
However, also keep in mind the reason fees are high is that so many projects and people use the Ethereum blockchain. Also, if you’re investing and not actually using the Ethereum blockchain to run applications-”gas fees” aren’t really an issue for you.
Currently, there are several solutions that are being worked on that aim to fix the gas fee problem, such as Layer 2 solutions and Ethereum 2.0.
Gas explained
Users pay gas fees to compensate for the computing energy required to process and validate transactions on the Ethereum blockchain. The term “gas limit” refers to the most amount of gas (or energy) you’re willing to spend on a single transaction.
How much Ethereum can you afford?
Consider Ethereum to be any other risky alternative asset when determining the appropriate amount for your portfolio.
If you’re not sure how much to invest or are concerned about a price drop soon after you buy, you can always use a tried-and-true strategy from traditional investing: dollar-cost averaging.
As with any investment, it’s a good idea to start small to learn the ins and outs of purchasing Ethereum. Since few people can afford a whole Ethereum coin, you’ll most likely be buying fractions.
Tell me again why Ethereum is so valuable
Why is the value of ethereum increasing?
As more developers look to create things on Ethereum, they must buy more ether to pay gas fees, which raises the price of ether. Investors in ether are betting on the continued use of the most widely used blockchain and the future potential of its applications.
Why is Ethereum so popular?
Ethereum supporters believe that its main advantage over Bitcoin is that it allows individuals and businesses to do much more than just transfer money between entities, prompting Bloomberg to call it “the hottest platform in the world of cryptocurrencies and blockchains.”
Where can I buy Ethereum?
After providing some identity verification it’s actually supers-simple to buy Ethereum, or any cryptocurrency on one of following exchanges:
Choosing your best option
Choosing the best way to buy Ethereum hinges on experience, comfort, and what you want to achieve with your Ethereum investment.
However, It may be best for beginners to begin with one of the crypto exchanges profiled above. As always, do your own research, talk with a trusted financial advisor before making any decisions.
This article is provided for educational purposes only and is not an endorsement of Ethereum as an investment. As with any investment decision, do your own research and consult with your financial advisor.
If you liked this article you might also want to read: How to buy Cardano?
Jay Speakman is a technology writer based in San Francisco, California. He writes on the topics of blockchain, cryptocurrency, DeFi and other disruptive technologies. Clients include Avalanche, Be[in]Crypto, Trust Machines and several blogs devoted to blockchain gaming. He will not rest until fiat currency is defeated.
