The ultimate beginner's guide to trading Ethereum
Why Should You Consider Buying Ethereum?
Apart from being a revised, streamlined version of Bitcoin, Ethereum also has many features on its blockchain that have an advantage over other cryptocurrencies out there. The first Ether tokens were pre-mined and sold to investors in 2014, with the platform going live the following summer.
But why is Ethereum so different from Bitcoin? It’s all about the smart contracts. Essentially, smart contracts are algorithmic agreements between two parties, which are programmed to autonomously carry out actions once a value exchange has been agreed. This is why the whole ICO industry is built around Ethereum, as it is the perfect software solution to the issue of investing in new businesses and ideas.
Smart contracts are exciting due to their far-reaching areas of application, while the coin founders have their long-term sights set on revolutionising the internet with their technology. Reducing inefficiency, increasing productivity and streamlining workflows are key caveats of their philosophy, so it’s not much of a surprise that Ethereum has piqued the interest of several high-profile backers and supporters.
Continued prominence and performance within the market make Ethereum an enticing prospect for investors. Those looking to expand existing portfolios, be them short or long-term focused, have plenty to seriously consider with this enduring crypto success story. Ethereum was one of the first major players to emerge after Bitcoin, with many arguing the cryptocurrency has defined the altcoin environment. While the initial boom days for investment might have passed, the far-reaching philosophy behind Ethereum suggests there’s plenty of market mileage yet to come.
It is nonetheless, worth remembering that the altcoin deviated from its initial plan after the security breach in 2016 on the Decentralised Autonomous Organisation platform. The hard fork led to the creation of its namesake Ethereum Classic. Its developers stuck to the original blueprints whilst others forked off into another way of thinking.
What are the Pros and Cons of Buying Ethereum?
When it comes to investing in any context, it’s crucial you have a clear understanding of both the benefits and potential for return, along with the associated risks to an investment. Such transparency will help you make wiser decisions when investing in cryptocurrency, negating potential losses when you buy and sell Ethereum.
Ethereum is a slightly different proposition to Bitcoin, as the blockchain houses many different business ventures and ideas. This means that the de facto cryptocurrency of the Ethereum network (Ether) is used for far more than just payments between individuals and companies. With this in mind, we’ve looked at both the pros and cons of buying Ethereum;
- Conventional currencies like the Pound, Euro and Dollar are all governed by a central institution. When a national institution makes the decision to lower or raise interest interest rates, the associated currency experiences significant changes in value almost immediately. Unlike conventional fiat currencies, Ethereum is not governed by a central authority and is therefore immune to such volatile value changes. This is known as ‘decentralisation’.
- Sole-ownership of holdings and the potential for anonymous trading makes Ethereum an enticing investment prospect.
- Ethereum is a blockchain that runs not just a cryptocurrency, but many different things. Want to invest in collectible digital pets? Ethereum has this. Want to buy an ICO token? Ethereum has this. Overall, if Ethereum is becoming the blockchain of choice for all of these projects, the value of the currency is more likely to go up and up over a longer period of time.
- Smart contracts. These things completely opened up a new way of people to invest in new projects and businesses. ICOs are all ran on the Ethereum network, meaning the currency is going to be vital to the eventual growth of the cryptocurrency market.
- Newcomers to cryptocurrency might not be prepared for the slightly advanced nature of the Ethereum network. Bitcoin is a far easier prospect to understand; one blockchain, one currency, one idea. Buying Ethereum isn’t just an investment in the actual asset, but also a vote of confidence for the wider Ethereum network. It’s a complicated world, and needs to be understood well in order to profit properly.
- A lack of regulation of the crypto sector has implications for buying Ethereum. With no governing bodies overseeing things, there’s always the chance of prices suddenly soaring or crashing considerably. However, you can trade on Ethereum’s price with fully regulated brokers – this then mitigates your risk when dealing with cryptocurrencies like Ethereum.
- Although Ethereum has a lot more technical advancement over Bitcoin, its value isn’t as well understood. This can cause the price to fluctuate solely based on news rather than changes in the technology.
What are the Best Payments to Use When Buying Ethereum?
If you’re interested in investing in Ethereum, you’ll be glad to know that this increasingly popular cryptocurrency can be purchased via a variety of payment methods. It’s worth spending some time considering which method to use when making your purchase, however. Each payment method has its pros and cons, with any drawbacks having the potential to dent your investment opportunity.
Buying Ethereum with PayPal
There aren’t many exchanges that actually offer the ability to buy Ethereum with PayPal. Brokerages are a different story, as they are usually regulated by a governing body, meaning PayPal are more likely to deal with them. As PayPal is a regulated business itself, it has to put strict checks onto the exchanges and brokerages – to make sure it keeps compliant.
Obviously, PayPal is an extremely convenient and popular choice for online payments. However, it’s not the easiest to actually purchase cryptocurrency using the service, meaning most of the purchasing of Ethereum is simply for trading purposes. Most regulated brokers will offer the ability to trade on the coin buy buying with PayPal, but there are a few that don’t.
PayPal is an established presence in the e-wallet world with a positive reputation to match. It’s one of the most secure electronic transfer systems around, so it makes sense for users seeking peace of mind when deciding on a payment method for dealing with cryptocurrency.
What’s more, while fees are generally low if applied at all to transactions, there’s no steadfast rule on how much these might be. Always consult terms thoroughly at any given provider to be clear on how much you extra you might be forking out for fees.
Buying Ethereum with Cash
You can buy Ethereum with cash but it is actually a very difficult thing to do. Unlike Bitcoin, Ethereum is far less prevalent in the offline world, and there aren’t many services out there that can facilitate the meetup and payment of Ethereum using cash. Essentially, you’ll need to buy directly from a seller, in person, all offline in order to actually purchase Ethereum with cash.
Ethereum ATMs and other various Bitcoin technologies don’t exist anywhere near the level that the Bitcoin alternatives do. This makes buying Ethereum with cash an almost impossible task.
Buy Ethereum with a Credit or Debit Card
Just like any other online purchase, buying Ethereum with a credit card or debit card would be most people’s preferred payment option. Although buying any cryptocurrency with a card is obviously a convenient and desirable method of payment, there are a lot of restrictions and regulations that have been put in place which means providers aren’t as prevalent as you might think.
Fees involved in card transactions vary. Some providers charge a lot for cryptocurrency transactions because of the added risk involved. In fact, some credit card companies flat out refuse to make any sort of cryptocurrency purchase – which of course, leaves your options limited.
Alternative Methods for Buying Ethereum
There are a few other payment methods for purchasing Ethereum, but the most popular of which is the classic bank transfer. Most exchanges and brokerages will allow you to transfer funds directly from your bank account to theirs. They then hold these funds in escrow until you purchase coins from sellers across the World.
Alongside this, there are a few Ethereum ATMs
spotted across the World. Following the example of Bitcoin’s ATMs, the Ethereum ATM enables you to purchase Ethereum using your bank card, or to sell Ethereum and withdraw from your wallet in cash.
There are also debit and prepaid cards out there that have Ethereum wallets attached to them. This method of paying enables quick access to cryptocurrency, but in return, the coins can’t be transferred to anyone that doesn’t use the card provider themselves. This limits the whole purpose of why blockchains such as Ethereum were invented.
Buying Ethereum in Your Country
Ethereum and other cryptocurrencies are a truly global venture, so you won’t struggle to find trading platforms and exchanges dealing in it. However, when picking a provider from the hundreds of potential options out there, it’s essential you opt for one that provides clear and detailed content in the official language of the country you reside in.
The investors should choose an exchange that uses a language they understand irrespective of the country where the exchange is based or the investor is living. It is important for several reasons; first, it is easy to understand the different trading options on the platforms. Secondly, the trader can utilise promotions on the site. Finally, it makes it easy to incorporate a trading robot into the trading experience.
Some might consider translator tools a way to overcome this obstacle, but to enjoy maximum levels buying confidence, make sure the place you’re purchasing Ethereum has gone to the effort of explaining everything you need to know in English already. Furthermore, there are several easy to use English-based trading platforms and exchanges for English-speaking traders.
Another essential factor to consider is the legality of trading in cryptos in the country. Countries such as Nepal, China and Egypt have total bans on digital assets. However, most countries in Europe and states in the US allow buying and selling cryptos.
Is There a Difference Between Buying and Trading Ethereum?
Yes. For those new to the world of cryptocurrency, the differences between buying and trading aren’t immediately obvious. Firstly, we’ll focus on what it means when we refer to buying Ethereum. As a general rule of thumb, those who buy Ethereum are individuals looking to digitally own the actual Ether asset. This is usually so they can keep the coin for a long time, support the blockchain or to actually use the coin to purchase different things on the Ethereum blockchain itself.
Unfortunately though, owning cryptocurrencies as a whole aren’t covered by any regulatory body, meaning your asset purchases aren’t covered in cases of fraud, theft of loss. Buying the coins is also a slow, cumbersome process – meaning making quick profits on fast market shifts is almost impossible. Instead, you should look to trading on the coin rather than purchasing it directly.
Trading Ethereum usually means to buy a CFD on the coins value, earning a profit on any increases and losing money if the coin starts to drop in value. This form of cryptocurrency purchase lends itself very well to quick profits on market shifts and even allows for you to short on a currency when you think its value will drop. The added bonus is that all brokers that offer this type of trading are completely regulated by law, meaning your money will be covered in case of any unlawful activity or company mess-ups.
What Fees are Involved When Buying Ethereum?
When it comes to buying Ethereum, encountering fees is unavoidable. Generally, transaction fees are fair and won’t impede your investment returns too considerably. The reason they exist is solely down to the nature of blockchain payment processing. Essentially, the blockchain uses many users to contribute computational power to the network for payment processing. To incentivise this, Ethereum pays these people with an amount of Ethereum. This process is otherwise known as ‘mining’ and many blockchains use it to get their users to contribute computing power.
There are a few types of fees that are usually associated with any Ethereum purchase;
Most cryptocurrencies out there carry a small fee for every single transaction that is made. This is due to the mining incentives that are required to keep the blockchain network running. Ethereum is no different, and the transaction fees are baked into the way that the Ethereum blockchain works.
If you’re looking to buy Ethereum, you will always see some sort of transaction fee, but it is usually a very small amount and goes directly to the miners that contributed computational power to ‘mine’ the transaction.
It’s no surprise deposit fees exist in the cryptocurrency world. After all, trading platforms and exchanges need an income in order to stay operational. Charging users a small fee when they make a deposit can generate a substantial income for platforms and exchanges, although fee amounts vary from one provider to the next, so do your homework to get the best deal. Also, don’t automatically assume those platforms without deposit fees are the best option. Having to fork out nothing to deposit might seem enticing, but the compromise might be an increase in extra/bloated transaction or withdrawal fees.
When it comes to buying or selling Ethereum, a lot of trading platforms or exchanges will charge you a small amount to withdraw your money from your platform. They usually roll this together with some sort of exchange rate fee, but overall they aren’t that high. There is sometimes a cost associated with moving money around and most platforms use this fee to cover their backs on any transactions.
Commissions and Spreads
Spread is the difference between the asking price of a currency, vs the actual amount that you bid on. This is a tiny margin that is added to every trade, and all brokers use this to make a profit for using their service. It can be likened to the small odd differences in casinos which means the house will make a commission on every single bet placed.
In the trading world, spread can be seen in the difference between the current buying price versus the current selling price. There is always a small discrepancy, and this is the small margin that brokers will put in place to earn commission on every single trade made.
Some brokers or platforms also just put a percentage based amount on top of all trades. This is normally stated up front and can be seen as a commission that goes directly to the brokers.
Brokerages Versus Exchanges
There are multiple differences between these two forms of purchasing Ethereum, but breaking down their specific fee structure is reliant on understanding the core differences. Overall, exchanges are a middle man platform that facilitates the transfer of cryptocurrency for other crypto/fiat currencies. Usually, they bump up transaction fees and charge slightly more than the Blockchain requires, or they will add a deposit/withdrawal fee.
A brokerage usually facilitates a trade, either with a CFD or another derivative. You’re not technically buying the digital coin, but instead, making a trade on its value. Brokerages are regulated by governing bodies and don’t run the same risks as buying Ethereum through an exchange. Usually, the costs associated with using a brokerage sit within the spread and commission sections – meaning you’ll usually see the difference in buy/sell price and have an upfront view if any commission is charged.