How To Invest In Ethereum: Is It Worth It?
Many people have grown curious about the crazed world of cryptocurrency as prices soar.
Some investors are cashing in on the lucrative world, but others are waiting to see what happens to the relatively new, and risky, market.
One of the most common currencies is Bitcoin, which is currently worth more than 6,000 per unit!
Luckily, Ethereum is a more affordable option. At under 300 per unit, the newer coin may be worth taking a look at. You probably have a million and one questions about Ethereum, so let’s dive right in!
What is Ethereum?
Before you decide whether or not to invest in Ethereum, it is important to understand exactly what it is.
Credited to Vitalik Buterin, Ethereum was launched in 2015 and the formal development began through a Swiss company, Ethereum Switzerland. A nonprofit foundation, the Ethereum Foundation,was created too. Development was funded by an online crowdsale in 2014.
Ethereum hopes to solve one of the largest problems of the internet, the centralization of data. You have probably noticed that most of the data you have on the internet is stored on either a server or in cloud locations. Everything, including your banking information, is stored by either the company or a third-party service. These large digital data storage areas can be targets for hackers that want your data.
The idea behind Ethereum is to create a decentralized way to store data on the internet. The plan is to return control of the data to the data owner and restore the creative rights of content to the original creator. A number of industries, including financial services, software developers and hardware manufacturers are all using the Ethereum platform.
However, Ethereum has a monetary aspect, too. Like bitcoin, you can mine ether, which is a token that fuels the network and a currency you can transact with.
How does Ethereum compare to bitcoin?
Ethereum is fundamentally different from bitcoin. The goals and strategies of the two lead to entirely different outcomes in the currencies.
Bitcoin is less diverse than Ethereum. It uses blockchain technology to offer one kind of application. Bitcoin mining only stems from peer-to-peer electronic cash interactions. It lets people pay via bitcoin throughout the web and allows for currency ownership to be tracked through time.
But Ethereum is more than a currency. It’s a ledger technology that companies are using to build applications on. It’s more than just a platform, Ethereum is also a programming language. The primary purpose of ether is not to be a payment mechanism but to enable developers to build and run distributed applications.
Ether is mined on a variety of applications. The currency is used pay for services on the Ethereum network, but investors can buy the tokens in hopes that its value will rise over time.
Are there different kinds of Ethereum tokens?
Yes. As if the world of cryptocurrency was not already confusing enough, there are two different Ethereum tokens that investors need to be aware of.
Ethereum (ETH) and Ethereum Classic (ETC) are the two separate tokens that you need to know about. So why are there two different kinds? The first token created was the Ethereum Classic. It was used in the beginning of the Ethereum development. A few years ago, a popular cryptocurrency exchange was hacked and a ton of ETC tokens were stolen from investors.
After the hack, the Ether community decided to move away from Ethereum Classic to the currently used Ethereum (ETH) token. The move punished hackers and created the new version of the currency.
The ETH token is the more valuable of the two tokens. It is nice to see that the community was able to punish hackers even if it required a large shift.
Long-term investing options with Ethereum
For the purposes of this article, we will consider a long-term investment strategy in Ethereum as anything over one year. In a long-term strategy, you may plan to hold onto your investment for years to come.
Possible Advantages of long-term investing with Ethereum
The cryptocurrency industry is still in its early stages, so Ethereum is very much still a new development. The entire industry is expected to grow over time, but no one can predict how much it will grow (or if it will actually grow at all). This means that it is still a risky investment.
Although it is fairly likely that the entire cryptocurrency industry will grow over the next several years, will Ethereum grow with it? No one can know for certain, but things are currently looking good for Ethereum investors.
The ETH is one of the top three cryptocurrencies on the market today. People are using Ethereum to make online purchases and accept payments consistently. It is hoped that the token will continue to grow in value as the market grows, but as with all investments ETH carries risks.
In addition to the expected market growth, Ethereum is planning to make improvements to its technology in the near future. As the technology expands Ethereum’s use, it will continue to grow in value.
The improvements could cause the value of ETH currency to increase dramatically over time. Obviously, changes in the basic technology will not happen overnight, but the long-term potential growth of ETH may be high based on these changes.
Possible Disadvantages of long-term investing with Ethereum
The market of cryptocurrencies is generally growing. As it grows, more and more competitors will pop up to compete with Ethereum technology. The competition may stimulate more growth, but it could also cut into the potential growth of the ETH value.
A new competitor may become the next biggest cryptocurrency and cut Ethereum completely out of the market. We can speculate that Ethereum will remain the preferred currency. However, we need to remember that if a new and better technology comes along then it will potentially outperform ETH.
If you decide to become a long-term investor in Ethereum, you will need to set some ground rules as to when you will sell. It is unlikely that you will be able to cash in on the short-term profits of the volatile cryptocurrency market if you are holding onto your investments for a long period of time.
A final thing to note about long-term investing in ETH is the potential for government involvement down the line. Currently, the laws created by the government may not have too much of an effect on the value of the cryptocurrency market, but eventually, the government may interfere with the market.
When new laws and regulations are created, it could wreak havoc on the value of your ETH. If you invest, make sure to stay current with government regulations on cryptocurrency, otherwise, you could wake up to a frightening surprise one day!
Short-term investing options with Ethereum
Short-term investing would fall into the category of a 0- to 12-month holding period. If you intend to sell your ETH within a year, then you would be following a short-term investment strategy.
Possible Advantages of short-term investing with Ethereum
The general idea of investing is to buy low and sell high. With short-term investing, you are attempting to buy low and sell high within a short window of opportunity. The cryptocurrency market is so volatile that you may have the opportunity to find high profits through this strategy.
In order to take advantage of the market’s volatility, you will need to keep a close eye on it as it rises and falls. Buy when the price has fallen. If you see the market rise, make sure to secure your profits by selling at the right time.
The key to this strategy is that you can’t wait too long to sell! If you see that you can make a profit, then take it. The market can fall as fast as it rises, so lock in your profits when you have the chance.
Try to keep an eye on the factors that contribute to the volatility of the ETH’s price, including government regulations, new competition and various types of market manipulation that can pop up.
Possible Disadvantages of short-term investing with Ethereum
Ethereum is only one of the coins in the cryptocurrency market. Some others (like Bitcoin) may be better for creating short-term investment profits. Although ETH may produce some profits in the short term, the returns may be smaller than what you want to earn.
Before you decide to try short-term investing in Ethereum, ensure that you can gain profits that are worth your time. Short-term investing requires a large investment of time. Once you make an investment, you will need to watch the market closely to find the most opportune time to sell.
With this strategy, you would need to be prepared to spend at least some time checking into the ETH market on a weekly (if not daily basis). Short-term ETH investments may not be worth it unless you are prepared to commit that time.
As with other investing, especially cryptocurrency investing, there is a risk involved. Short term may enhance the risks by forcing you to buy and sell in short intervals. If you do not have experience actively trading, then this may not be the best place to start.
Is Ethereum a good investment?
Because cryptocurrency is newer and the price is volatile, Ethereum can be a risky investment. Please consult with a financial professional before making an alternative investment like this.
At the moment, Ethereum may be a good investment. The cryptocurrency market, in general, is dipping slightly, which means it may be a good time to buy tokens.
Many new companies are using Ethereum technology to build their businesses, so it appears likely that the value of ETH may grow over time. However, it is not guaranteed that it will grow. As with all investments, you may end up losing money so do not view this as a sure-fire way to grow your money.
If you are just starting out with cryptocurrency investing (or investing in general) then you should take it slow if you do decide to invest in ETH! Don’t get in over your head. You can always slowly increase the amount you invest but jumping in all at once is not a good idea.
Is it worth the investment?
Maybe. You need to decide what your risk tolerance is before you decide to invest in ETH. Some indicators show that Ethereum will grow over time and produce a large profit. However, the lucrative projections are not guaranteed.
You may never see a profit and you may lose money if you happen to buy and sell at the wrong times. Every investor should expect to take some wins and loses, but the stakes seem to be higher with cryptocurrency. The highs are mountainous and the lows are well below sea level. The swing is enough to frighten even seasoned investors.
With all of that being said, the high risk could potentially pay off. You just need to decide for yourself whether it is worth the risk or not. It is a personal decision, but if you decide to invest, I would recommend starting out with a small investment. You can always increase your investment over time, but if you lose too much money in the beginning then you may not have the funds to invest more later.
How to get started investing in Ethereum
If you decide that you are ready to start investing with Ethereum, you will need to know how to do it. Unlike regular stocks, bonds and other typical forms of investing you will not be able to buy ETH from a broker.
In order to purchase any kind of cryptocurrency, you will need to set up a wallet. You do not want to keep your virtual coins in an online exchange platform because it leaves them open to hackers. One easy way to lose a lot of money through ETH investing is by not protecting your tokens.
A virtual wallet will allow you to have total control of your coins with the use of a special key. The key is basically a password. It is just common sense to protect your money, but many people skip this important step. As with other types of password protected platforms, it is only effective if you keep your password confidential.
A great digital wallet to use is Coinbase. In addition to Ether, you will be able to store Bitcoin and Litecoin in this virtual wallet and know that they are safe.
What are you buying when you buy ETH?
If you invest and accumulate ETH in your digital wallet, it is important to remember that you are accumulating a different currency. The ETH is not going to produce any payouts or dividends like most traditional investments would. You will strictly be buying a different currency in the hopes that it will eventually be worth more.
A good comparison is when you buy other currencies to travel with. Before you head to a foreign country, you sometimes exchange your American dollars for a new form of money. You can use this new form of money to buy things in the country you are traveling to. In the case of ETH, those things might include app development. However, if you don’t want to buy things in the realm of software development, then you will need to convert the currency back into dollars.
As an investor, you hope that the value of the currency will increase between the time you buy and sell it. While the market will determine whether or not you make a profit, you need to be aware of what you are actually buying. ETH should not be treated as a share or something that will be used to create a steady passive income. The only time you may earn money through this investment is when you sell it.
Tips from a consumer safety expert
Investing in a cryptocurrency can be overwhelming to beginners, so I interviewed a consumer safety expert to find out his best tips for safe Ethereum investing.
Cal Cook is the consumer finance investigator at ConsumerSafety.org. It is safe to say that his knowledge about safely investing in cryptocurrency is unmatched. It is his job to find scary scams and ensure that our finances remain safe.
Cook’s best tips if you decide to invest in ETH include:
- Never invest more than 5% of your net worth unless you’re an expert. As we’ve seen in 2018, the crypto market is wildly volatile relative to other asset classes, and you don’t want to put too much of your capital at risk.
- Research and fully understand the protocol and future milestones before investing any money. By understanding what Ethereum is and how it works, it will help you make rational decisions and avoid panic selling during a market crash.
- Buy on insured exchanges like Gemini and Coinbase. The fees might be a little higher than smaller exchanges or peer-to-peer exchanges, but the purchase process is more secure.
It is important to feel safe if you are investing in Ethereum. One of the best ways to ensure that your money is safe is to listen to your gut feeling as you are investing. You do not want to put your money into a situation that makes you feel too uncomfortable.
It is expected that you may feel some nerves when investing in cryptocurrency for the first time. However, if you are losing sleep over your investment then it might not be the best fit for you. It will never be worth it to spend all of your time worrying about whether or not your investment is safe.
What is mining Ethereum? Should you try it?
ETH has to come from somewhere. The mining process is how ETH becomes available for people to buy. You may be thinking that you want to skip the buying process and just mine it yourself. Let’s take a look at how ETH gets mined.
All ETH comes from a digital mining system that has a chain of checks and balances in place. As a miner, you would attempt to solve problems and verify information within the blockchain. Through your problem solving and information checking, you would come up with a solution to the issue.
After you have solved the problem, you would announce your discovery to your fellow miners around the world in a sophisticated programming language. If more than half of the other miners agree that you have successfully solved the problem, then a new block gets added to the blockchain. The block will provide ETH tokens to the miner who solved the problem.
Unless you are amazing with technology and coding, then mining ETH is most likely not worth your time. Although a DIY attitude is always good, deciding to mine ETH yourself would likely cost you more in time and money than you could ever mine in ETH. Be realistic about your skills before you attempt to pursue this option.
General investment advice
Investing in Ethereum may not be the right choice for you and your finances, but investments of some kind are an important part of most financial futures. A solid investment plan can help you to build a successful future that helps you to accomplish your goals and dreams.
If cryptocurrency does not fit into your plan then do not worry! You can easily find a different investment vehicle that suits your own needs. Between 401k’s, Roth IRAs, and other investment vehicles, you will be able to find something that can help you meet your investment goals.
Investing can sometimes seem like a difficult path, but remember that it is never too early (or late) to start investing. It is important to build an investment plan that works for you!
Will you add Ethereum to your investment portfolio?