Photo courtesy Rawpixel
Opinions expressed by Digital Journal contributors are their own.
Ethereum, a crucial player in the burgeoning world of non-fungible tokens (NFTs), is a name you might be familiar with. As the second-most popular cryptocurrency by market capitalization, Ethereum has captured the interest of many investors, especially after reaching several all-time highs recently.
Experts often recommend Ethereum, along with Bitcoin, as a starting point for cryptocurrency newcomers, given its significant market presence compared to lesser-known digital currencies. If you’ve decided to explore cryptocurrencies and are prepared for the associated risks, here’s a guide to help you get started.
Understanding Ethereum
Before diving into the purchase of Ethereum, it’s essential to understand what you’re investing in. While Ethereum has a track record as a store of value, its true innovation lies in its utility. Ethereum’s blockchain is a platform for developers to create decentralized applications, or DApps, which require the associated token, ether (ETH), for network access. Users must also acquire Ether to interact with these applications.
Much like Bitcoin, Ethereum is considered a long-term investment, with investors hoping for value appreciation over time. However, it’s important to note that the price of ether can be volatile in the short term, reflecting the broader volatility of cryptocurrency investments.
To manage this volatility, financial advisors typically suggest limiting cryptocurrency holdings to less than 5% of one’s overall investment portfolio and only investing funds that you can afford to lose.
Evaluating Ethereum’s Value
In November, Ethereum peaked at a record high of $4,800. Over the past year, its price has fluctuated between $1,000 and $4,800. Despite these ups and downs, Ethereum’s value remains significantly higher than it was a year ago.
The price of Ethereum, like other cryptocurrencies, is subject to sharp fluctuations. Its value is not tethered to traditional commodities or currencies, relying instead on market perception and investor sentiment. Consequently, media coverage and regulatory news can impact its value, although indirectly.
The Process of Buying Ethereum
Selecting a Cryptocurrency Exchange
To buy Ethereum, you need to use a cryptocurrency exchange, as traditional banks or brokerage firms like Fidelity or Vanguard do not offer cryptocurrency purchases. Exchanges range from basic to advanced, catering to different user needs.
Popular exchanges where you can purchase Ethereum include Coinbase, Gemini, and eToro. Additionally, platforms like PayPal and Venmo have made it possible to buy Ethereum, although the fees, security measures, and features of these platforms can vary, so conducting thorough research before selecting one is advisable.
Be prepared to provide personal information and verify your identity on these exchanges. Once your account is set up, you can fund it using a debit card or bank account, with fees varying based on the chosen method. After funding your account, you can convert U.S. dollars into Ethereum by specifying the amount you wish to purchase. The transaction will show the equivalent percentage of a full ether coin based on the current price.
Securing Your Ethereum
For those holding small amounts of cryptocurrency, leaving it on the exchange might suffice. However, for larger holdings, transferring them to a digital wallet could offer enhanced security. Digital wallets vary in security features, so selecting one that suits your needs is crucial.
Is Ethereum a Prudent Investment?
Cryptocurrency investments are speculative and highly volatile. Prospective investors must understand the risks before committing funds. Experts generally advise sticking with Bitcoin and Ethereum due to their established market positions.
As a rule of thumb, never invest more than 5% of your portfolio in cryptocurrencies. Invest only what you can afford to lose and ensure that such investments do not compromise other financial priorities, like debt repayment or retirement savings.
For more detailed information, visit the original source: Digital Journal.
