Ether, or ETH, is the currency of the Ethereum blockchain. It is the second largest crypto, after Bitcoin, in terms of global market capitalization. It also underwent a significant update in 2022, called the merge, in which the system shifted from using proof-of-work to proof-of-stake. Among other changes, it allows users to stake their Ether, which then earns interest-like income.
Ethereum is one of the most widely-circulated cryptocurrencies, and you’ll have many options when choosing where to buy it. However, exchange fees, payment methods accepted and the option to store your crypto where you want can vary from exchange to exchange, so don’t just jump at the first place you see it.
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1. Choose a cryptocurrency exchange
Centralized crypto exchanges: Easy to use
Centralized exchanges such as Gemini or Coinbase act as middlemen in the buying and selling of cryptocurrencies. The best exchanges have fees below 2% and allow you to move your crypto to your own crypto wallet.
Pros
- The ease and simplicity of centralized exchanges make them popular places to buy cryptocurrency.
- They can be a good choice if you're somewhat new to cryptocurrency or are looking for a user-friendly experience.
Cons
- Some exchanges have limited ability to interact with wallets.
- Fees can be costly.
Decentralized exchanges: Maximum control
In a sense, a decentralized exchange, or DEX is the truest way to trade cryptocurrencies in that there is no third party whatsoever.
Pros
- With DEXs, you retain full control over your funds and trade directly with a buyer or seller unlike centralized exchanges, which act as middlemen.
- Decentralized exchanges can be cheaper than centralized exchanges.
Cons
- DEXs are more technical than centralized exchanges, making them more difficult to set up and confusing to use.
- If you don’t already own crypto, it’ll be tough to use a DEX. Most don’t allow you to buy or sell crypto for cash.
Online brokers: Investment diversification
Certain online brokerage accounts offer investors access to cryptocurrency alongside traditional investment assets such as stocks.
Pros
- Online brokers with crypto offerings allow you to build a diversified investment portfolio that includes non-crypto assets such as stocks, bonds and mutual funds, which may fare better than crypto during a crypto downturn.
- Online brokers are often even more beginner-friendly than centralized crypto exchanges, as they cater to a wider audience of investors than just crypto enthusiasts.
Cons
- Many online brokers only allow users to buy and sell Ethereum for fiat currency on their platform. You may not be able to send your Ethereum to another person, store it in an external wallet, stake it, or trade it for another cryptocurrency, depending on the broker.
- Like centralized cryptocurrency exchanges, many online brokers charge substantial fees for trading Ethereum.
2. Decide how to pay
Fiat currency
You can buy cryptocurrency with traditional fiat currency such as U.S. dollars. On some exchanges and brokerages, this is your only option. If you don't already own cryptocurrency, you're going to have to use cash at some point. If you're using a centralized exchange, you can fund your account using a bank transfer, a credit card or a debit card. A few payment methods, like credit cards, incur fees on some platforms.
Cryptocurrency
Some exchanges allow crypto-to-crypto trading. This can be a helpful strategy if you own another cryptocurrency, such as Bitcoin, that has increased in value and you want to diversify your holdings. Keep in mind: If you trade one crypto for another, you’ll owe taxes if the crypto you traded is worth more than what you bought it for, even if you never exchange it for dollars. Also, check to be sure the exchange you use lets you trade the crypto pair you have in mind, not just ETH.
3. Choose where to store your Ethereum
You’ll need a way to securely store the private keys that allow you to sell, spend or otherwise use your digital currencies. The storage options an exchange offers — or doesn’t — can be a deciding factor when choosing where to buy Ethereum .
On-platform storage: Easy, but you’ll give up control
Some brokers or exchanges let you store your crypto on their system. Technically, that means they’ll have sole custody of your crypto’s private keys.
Pros
- It’s easy. There’s typically nothing to do after you open your account.
- You don’t have to worry about losing the private key to your wallet or forgetting a password — a real problem that has cost people millions of dollars. If you forget your exchange password, you can regain access much like resetting a password anywhere else.
Cons
- You likely won’t get the full benefits of cryptocurrency, such as using the decentralized applications listed below, nor will you have complete control over your wallet and the crypto it holds.
- Central exchanges can crash — and have done so before, multiple times. For example, FTX, a major exchange, abruptly filed for bankruptcy, leaving billions in customer funds in limbo.
Non-custodial wallets: Requires setup, but you’re in control
This option requires you to set up a wallet and transfer the crypto you bought elsewhere onto it. There are many wallets to choose from, and they fall into two groups. “Hot” wallets store your crypto online and give you access through an app or a browser extension. “Cold” wallets are physical objects, often resembling a thumb drive.
Pros
- If you use a wallet, you are the sole owner of your personal keys.
- Historically, exchanges have been big targets for hackers, and storing your crypto on a third-party wallet can reduce your risk exposure.
Cons
- Losing or forgetting your password can be devastating. Wallets have some redundancy measures, like seed/recovery phrases, but you’ll need to be proactive about putting those in place before you need them.
- Wallets don’t require a high level of technical expertise to set up, but it does add another layer of complexity if you’re setting one up for the first time, and there can be a cost, too.
Think about this before you buy
Choosing the right way to buy and hold ETH comes down to experience, comfort, what you want to accomplish with your ETH and how much you plan to buy or hold.
For beginners, it may be best to start with a single centralized crypto exchange or brokerage account. It’s entirely possible that you’ll end up trading on multiple platforms and storing your crypto in multiple places. You could work your way up to the more advanced, decentralized platforms later.
Your decisions may also be informed by whether you view Ethereum as a long-term investment, a short-term buy, or a speculative bet on a volatile asset.
» Interested in other cryptocurrencies? Learn how to invest in Bitcoin.
Disclosure: The author Chris Davis owned ETH at the time of publication.
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