How to buy Ethereum

Launched in 2015, Ether is the second-largest global cryptocurrency by volume behind Bitcoin. It can be traded as an investment (ticker: ETH), and is the native currency of the Ethereum software platform.

While Bitcoin and Ethereum both use blockchain to support their cryptocurrencies, Ethereum uses more sophisticated technology that enables it to run applications. It was the first platform to develop smart contracts such as non-fungible tokens (NFTs), which can be used to represent real-world objects such as digital artwork.

As a result, Ethereum has been tipped as a key player in the development of the next generation of decentralised applications and exchanges.

Ether has rewarded investors with a stellar increase in price from £250 to nearly £2,300 over the past five years. However, it’s been a rocky ride, with a sharp fall of over 40% from its record price of over £3,800 in November 2021.

Investors also faced a 27% one-day fall in price in May 2021 after China announced a ban of cryptocurrencies.

Unlike Bitcoin, Ether does not have a maximum capped volume for ‘mining’ new coins. However, it is becoming more difficult to mine and the rumoured move to “Ethereum 2.0”, a proof-of-stake model, could eliminate mining entirely. ‘Miners’ would no longer have to compete to solve the same model, as with the current proof-of-work model, but would be selected to validate new blocks of data and earn Ether.

Ether is the second-most widely accepted cryptocurrency but has some way to go before catching Bitcoin, with a relatively limited group of retailers accepting Ether as a direct form of payment.

Here we look at the process of buying Ethereum, together with alternative ways of investing in cryptocurrency.

Please note that investing in cryptocurrencies is a high-risk proposition and you may lose some or all of your money. There is no guarantee that you will make a profit.

The Financial Conduct Authority (FCA), the UK’s financial regulator, issues regular warnings about the risk associated with the crypto sector.

Crypto assets are unregulated. The FCA says those buying cryptocurrency are “very unlikely to have any protection if things go wrong, so people should be prepared to lose all their money if they choose to invest in them”.

How to buy Ethereum in 4 steps

1. Find an exchange or broker

The first step is to choose a broker or crypto exchange.

A cryptocurrency broker provides an online mechanism to facilitate your contact with a cryptocurrency exchange.

A cryptocurrency exchange is an online platform that brings together buyers and sellers in order to trade cryptocurrencies.

With some exchanges, you can buy crypto using normal currency, such as sterling. Others require you to use one form of crypto to buy another. Here, you’d need to find a second exchange to buy coins that your chosen exchange uses, before you could start trading.

With brokers, check the rules regarding moving your cryptocurrencies away from a given platform. Some brokers stop customers transferring crypto holdings away from their account. This could become an issue if you decided to lodge your cryptocurrencies in a crypto wallet.

The FCA has a UK list ofregistered crypto asset firms.

2. Decide on a payment option

Having chosen an exchange or broker, you’ll need to add funds to your account before you’re able to start trading. Depending on your chosen provider, you can add money via debit or credit card, from your current account, via an electronic transfer, payment service or from a cryptocurrency wallet.

There are usually different transaction fees for each payment method. However, it’s worth reviewing these charges in order to maximise the amount of money to be invested in Ethereum. Credit card payments are usually treated as a cash advance, and subject to a higher interest rate than other forms of payment.

However, taking on debt to purchase highly-volatile assets is not recommended.

3. Place an order

Once you’ve transferred money into your account, you’re able to buy Ethereum. You should enter the currency’s ticker symbol (ETH), select the appropriate button on your trading menu and enter the amount that you wish to invest.

4. Choose a safe storage option

It’s important to note that cryptocurrency exchanges are not covered under regulatory protection such as the Financial Services Compensation Scheme in the UK. Despite investment in cyber-security measures, providers remain at risk of theft or hacking.

You risk losing your Ethereum investment if you mislay or forget the access codes to your account. It’s also vital to ensure that your Ethereum is held in a secure storage place.

You may have little choice in the storage mechanism if you buy Ethereum via a broker. However, if you’re using a crypto exchange and trading leading currencies, you will probably have access to an integrated wallet (or preferred partner) where you can securely hold your Ethereum.

If you would rather not use the provider that your exchange is partnered with, you could transfer your Ethereum from an exchange to a separate ‘hot’ or ‘cold’ wallet:

• Hot wallets: crypto wallets stored online that work on internet-connected devices, such as tablets, computers and phones. They are convenient but may have a greater risk of theft due to their internet connection. 
• Cold wallets: external devices such as USBs or hard drives that aren’t connected to the internet and therefore potentially more secure. However, you will lose access to your Ethereum if you lose or mislay the codes.

Transferring Ethereum to a hot or cold wallet may incur a fee, depending on the exchange.

Alternative ways of buying cryptocurrency

If you would rather not buy cryptocurrency via an exchange or broker, there are two indirect ways of gaining exposure to cryptocurrency assets.

1) Investing in cryptocurrency-connected businesses

One option is to buy shares in companies that use, or own, cryptocurrency such as Ethereum and the blockchain that powers them. These may enable you to have some exposure to cryptocurrency  via tangible products or services that are subject to regulatory oversight.

Here are some indicative examples of companies, although these are not recommendations:

• Nvidia (NVDA): a technology company that designs and sells processing units specifically for mining currency such as Ethereum. 
• PayPal (PYPL): the global payments platform has expanded its offering to allow customers to buy and sell certain cryptocurrencies with their PayPal and Venmo accounts.
• Square (SQ): the payment services provider for small businesses which has bought millions of dollars of Bitcoin since October 2020.

You will need anonline investing platform or trading app to purchase shares in publicly-listed companies. Please note that the usual warnings about investments apply and that there is no guarantee that stock market investments will make money.

2) Investing in crypto exchange-traded funds

Another option is to invest in funds based on holding cryptocurrencies such as Ethereum. Exchange-traded funds (ETFs) are ‘passive’ investments that typically track traditional stock market indices such as the FTSE 100 or S&P 500.

Crypto ETFs are relatively new products that are currently available only in certain jurisdictions such as the US. They are not yet available in the UK.