Ethereum is arguably the cryptocurrency with the best potentials for growth and profits. It offers a platform for developers and entrepreneurs to deploy decentralized applications that solve real world problems.
Ethereum ecosystem comprises applications such as Stablecoins, DeFi Infrastructure, Payments, Prediction Markets, Decentralized Exchanges and Asset Tokenized.
With this growth comes increased opportunities for investors.
This guide provides you with detailed information on investing in Ethereum.
Table of Contents
- Introduction to Cryptocurrency Investing
- Risks Involved with Cryptocurrency Investing
- Top 5 Ways of Investing in Ethereum
- Getting Started
Introduction to Cryptocurrency Investing
Cryptocurrency is digital cash.
It is a type of payment system where your funds are stored on a public ledger called a blockchain. All that is required to access the funds is a blockchain enabled wallet.
The major difference between cryptocurrency and legal tender (US Dollar, GB Pound etc) is that cryptocurrency does not have banks or other financial intermediaries to manage transactions. For legal tender, a central bank or commercial bank is required before users can make withdrawals or payments.
Cryptocurrency transactions, which include creation of new coins, verification and security, are managed by the network nodes, also called miners.
For a more detailed description of how cryptocurrency works, find out more on How Bitcoin Works (https://www.investopedia.com/news/how-bitcoin-works/).
Investing involves allocation of resources into assets, financial schemes or commercial ventures with the expectation of earning profit.
This implies that cryptocurrency investing involves putting your resources, usually money, into cryptocurrency ventures while expecting profits within a specified period.
Some crypto investing opportunities include trading, holding for long term, staking, lending, mining and ICOs (initial coin offerings).
Cryptocurrency investing is similar to other forms of investments but much riskier.
Risks Involved With Cryptocurrency Investing
Before profitability in any commercial venture, adequate risk management is required.
To this end, here are the common risks associated with cryptocurrency investing that you should know.
1. Crypto Market Volatility: Bitcoin fell from an all time high of almost $65k to $30k within a 5 week period. That’s a 54% drop in the value of investors holdings. Though the market volatility isn’t always that high, crypto prices are known for rapid increases and decreases.
2. Fraud: Transactions in cryptocurrencies are not reversible, even if funds are sent to the wrong wallet. Also, due to the autonomous nature of cryptocurrency, transactions cannot be easily tracked. These attributes make it easy for criminal elements to perpetuate such crimes as money laundering, illicit trade, and cyber fraud.
3. Theft: Stories of cryptocurrency theft is abound on the internet. In some cases these thefts were committed by persons or institutions that were entrusted with users’ funds. Just recently 2 South African brothers, owners of Africrypt, allegedly disappeared with $3.6 billion worth of investors funds (https://www.reuters.com/technology/safrica-crypto-exchange-brothers-disappear-after-client-cash-vanishes-lawyers-2021-06-25/).
4. Unregulated Financial Market: Cryptocurrency offers money making opportunities in a market that is largely unregulated. This means that market participants are not yet exposed to taxation. Which makes crypto investing very attractive to investors and government regulators. This also casts a shadow on Bitcoin and altcoins making their future uncertain.
5. Pump and Dump Schemes: These are activities carried out by groups of traders with the aim of manipulating crypto prices for their gains. These traders initially buy into a cryptocurrency early, after which they instigate other traders (outside their groups) to buy the cryptocurrency thereby making the price higher. The traders then begin to sell off their holdings when the price gets high enough. Undiscerning traders who fall into these traps always lose their money in pump and dump schemes.
6. Ignorance on How Cryptocurrency Works: One of the major reasons why investors lose their funds is their inability to grasp how cryptocurrency works. Ignorance exposes you to hackers, fraudsters and even manipulators.
Your ability to get accurate information will set you on the right path towards successful investing.
Top 5 Ways of Investing in Ethereum
Ethereum’s blockchain is an open platform that allows developers and entrepreneurs to build decentralized applications (dApps). Some of the popular applications currently running on it include decentralized exchanges (DEX), decentralized finance (DeFi), tokens, decentralized autonomous organizations (DAO) and non-fungible tokens (NFTs).
Ethereum is ranked second behind Bitcoin in terms of market cap.
It is a decentralized platform that offers you different investing opportunities that will produce profits for you.
1. Buy and Hold ETH
This is a crypto investing strategy that involves buying ETH at current market price and holding it for as long as possible.
In cryptocurrency, this strategy is referred to as “hodling” while those who adopt it are called “hodlers”.
If you trade cryptocurrencies on a daily or weekly basis, you find that there are lots of whipsaw movements in the trend. These movements, or “noise” can be avoided by simply using the buy and hold strategy.
Hodlers aren’t really bothered about the current market price of the token, but are more concerned about its long term direction.
According to the Ethereum price chart, 1 ETH sold for $10.46 on July 12 2016 but currently sells for $1,993 today (anchor text — “Ethereum price chart” link URL — https://www.coindesk.com/price/ethereum ).
That’s over 19,000% increase in value and profits for those who have held on to ETH since July 2016.
2. Trading on Crypto Exchanges
The main difference between traders and hodlers is that traders make profits from price volatility while hodlers profit from long term increases in the price of Ethereum.
Trades could last for a few minutes, hours, days or even months. While trading offers more short term profit, the risks are much higher as your trading funds can be wiped out from a single trade.
Traders buy low and sell high or sell high and buy low, depending on the choice of the trader.
Notable trading exchanges include Binance, Coinbase Exchange, Huobi Global, Bittrex, KuCoin and Kraken.
3. Profit From DeFi Projects
Decentralized finance (DeFi) is an ecosystem that is designed to offer financial products and services without involving financial intermediaries.
DeFi protocols are created with smart contracts that run on platforms such as Ethereum blockchain and Binance Smart Chain.
Services that are offered in DeFi include borrowing, lending, trading and staking.
Users can offer their tokens for liquidity, or lend their tokens to other users in exchange for profit.
Examples of DeFi applications include Aave, Compound, MakerDAO, Uniswap and Synthetix.
4. Staking in Ether 2.0
Ether 2.0 is the anticipated upgrade of the Ethereum network with changes that include efficiency, improved scalability and more transparent fee structure.
Changes that come with this upgrade also includes the transition from Ethereum’s current Proof-of-work (PoW) to a Proof-of-stake (PoS) consensus mechanism.
You can find out more details on the scheduled Ether 2.0 upgrade here (anchor text — “Ether 2.0 upgrade here” link URL — https://ethereum.org/en/eth2/ ).
In a PoS system, blocks containing transactions are added to the blockchain by a consensus of individuals that hold tokens on the network.
ETH owners can now stake their tokens on Ether 2.0 network and earn rewards ranging from 5% to 7% per year.
5. Monetize Your App on Ethereum Blockchain
Once upon a time, developers were only able to build applications for desktop computers and mobile platforms like Android and iOS.
But today, Ethereum offers an open platform where developers and entrepreneurs can create and publish decentralized apps. App creators are given the opportunity to transform their ideas into real world solutions while earning income and profits in the process.
Some of the apps that can be deployed on Ethereum include DeFi protocols, decentralized exchanges, tokens, decentralized autonomous organizations.
In fact, Ethereum gives you all that you require to transform your idea into a working app.
The different ways to monetize these apps include earning through transaction fees, advertisements, token sale, charging users for your service, and subscriptions.
Now that you understand the basics of investing in Ethereum, getting started becomes quite easier.
This section contains important resources that you will find helpful.
This is a software or hardware device that you use to store, transfer and receive ethereum tokens.
- Download MetaMask (https://metamask.io/).
- Create MyEtherWallet (https://www.myetherwallet.com/).
- Coinbase Wallet (https://wallet.coinbase.com/).
- Ledger Nano S Wallet (https://shop.ledger.com/products/ledger-nano-s).
- Download Trust Wallet (https://trustwallet.com/download-page/).
2. Trading Exchanges
These are crypto trading exchanges where you can buy and sell most of the cryptocurrencies.
- Binance (https://www.binance.com/en).
- Launch Uniswap (https://uniswap.org/).
- Sign up on Coinbase Exchange ( https://www.coinbase.com/signup).
- KuCoin (https://www.kucoin.com/).
- KyberSwap (https://www.kyberswap.com/swap/eth-knc).
3. Research and Analytics Websites
- Altus Finance (https://altus.finance)
- Coinmarketcap (https://coinmarketcap.com/).
- IntoTheBlock (https://www.intotheblock.com/).
- Santiment ( https://santiment.net/).
- Chainalysis (https://www.chainalysis.com/).
- CryptoCompare (https://www.cryptocompare.com/ ).
4. Ethereum Developer Resources (https://ethereum.org/en/developers/ ).
Ethereum offers investing opportunities to developers, entrepreneurs and users.
There are also inherent risks such as theft, fraud, crypto market volatility, unregulated market and pump and dump schemes.
Top 5 ways of investing include buy and hold ETH, trading on crypto exchanges, profit from DeFi projects, staking in Ether 2.0, and monetizing your app on Ethereum blockchain.
Please note that the information contained in this post does not serve as financial or investment advice. They are intended for educational purposes only
Cryptocurrency is a volatile instrument and you’re advised to carry out proper research before investing into it.