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At Midas.Investments, we want to help you learn all about the innovative world of cryptocurrency investing. Cryptocurrency, when done right, offers the potential to outperform traditional investments. How do you do it right, without losing all your money? Research and knowledge.
From buying and selling crypto on exchanges to crypto savings accounts to other types of investments, there’s a lot to wrap your head around. We’re here to guide you through it all. For those just starting out in cryptocurrency investing, our Wiki is a good place to start.
We’ll walk you through everything you need to know to get started in Ethereum investing.
What Is Ethereum?
Ethereum is a programmable blockchain platform used to power a range of decentralized digital solutions. It’s also what the cryptocurrency Ether (ETH) is based on. As a popular choice for developers, Ethereum has become a hub for a decentralized digital economy. It’s an open-access platform, meaning anyone with the appropriate coding skills can create software built on the technology.
What Is Ether?
Ether (ETH) is the cryptocurrency built on the Ethereum blockchain. There are many types of cryptocurrencies, in the same way, that there are many types of physical currencies. But unlike fiat currencies, such as the pound or euro, cryptocurrencies are not connected to a government or bank. They are considered decentralized currencies. There are thousands of different cryptocurrencies; some of the most commonly known are Bitcoin, Dogecoin, and Ether.
Cryptocurrencies like Ether offer a decentralized alternative to the existing financial system. They work as both a currency and an asset. As a currency, ETH can be used to securely buy things or pay for services through digital transactions. The transfer works using peer-to-peer transactions in the same way as regular money. Because of this, ETH doesn’t require the use of a bank.
Ether can also be invested or otherwise used in the decentralized finance (DeFi) ecosystem. In this way, it acts more like an asset, where it can earn interest and be traded with other currencies on an exchange, such as the Midas.Investments exchange platform.
Nonfungible tokens (NFT) have recently entered mainstream consciousness through things like the sale of Twitter founder Jack Dorsey’s first tweet, purchased using ETH for the equivalent of $2.9 million USD. NFTs, which are entirely digital, are part of the Ethereum blockchain. They are used to identify a unique digital item, such as Dorsey’s tweet, and to confirm its authenticity. The intricacies of NFTs are beyond the scope of this article; The Verge provides a good overview. And if you’re interested in the standard used to make NFTs, here it is.
Is Ethereum a Good Investment?
Depending on who you ask, you’ll get radically different opinions on whether or not Etherium is a good investment. Like any investment, only time will tell whether or not it was sound. Those entrenched in the traditional financial system, like hedge fund managers, tend to view Ethereum as a poor investment.
However, those who have dedicated their time to become experts on all things crypto have a different view. Crypto expert Jean Galea, for instance, sees it outperforming Bitcoin in the near future. In his opinion, Ethereum will see significant price increases. Increased interest in DeFi projects, the majority of which are built on Ethereum, will be the main driver.
Advantages of Ethereum Investments
Ethereum is built on blockchain technology, like Bitcoin. But whereas Bitcoin is only a currency, Ethereum is more. It has a currency component, ETH, but Ethereum can be used to build other things as well. Developers have taken advantage of this secure, open-source capability to create digital products, from games to map services to a Twitter clone. This makes Ethereum a more useful blockchain, increasing its value to provide a potentially better long-term investment.
Disadvantages of Ethereum Investments
Bitcoin, the leading crypto, has become almost synonymous with cryptocurrency and blockchain technology. Ethereum, however, suffers from a lack of general consumer awareness and a far smaller community than Bitcoin. This could become a problem, as it may limit how much Ethereum can grow.
It doesn’t help that Etherium was hacked, leading to questions of just how secure the blockchain really is.
Ethereum 2.0 and Proof-of-Stake
Proof-of-stake is going to take over from proof-of-work as the mechanism, or algorithm, for Ethereum’s network to find consensus. On a decentralized network, this is how overwriting data or double-spending coins is prevented. But proof-of-work, achieved through mining, is energy-intensive.
Proof-of-stake, which replaces miners with validators, has several advantages over proof-of-work:
- Less energy-intensive
- Doesn’t require advanced hardware to get started
- Stronger protections against centralization
- Support for shard chains
Understanding the Risks
Like all cryptocurrencies, Ether is incredibly volatile. This makes it a somewhat risky investment. Like all crypto, the safest approach is to only invest money you can afford to lose.
Besides crypto’s volatility, there are some other concerns. Its possible cryptocurrency is currently in a bubble that will, eventually, pop. Future regulation could also negatively impact crypto investments.
How To Make Money With ETH
Earning a profit from Ether can be as simple as purchasing ETH coins and holding them. This buy-and-hold approach works on the assumption that, over the long term, Ether will rise in value. This requires a willingness to experience the volatility that crypto is known for and confidence that it will continue to rise in value.
Trading on an exchange is a short-term way to make a profit. This requires knowledge of the market, though, to avoid losing your initial investment.
You could, if you’re committed to owning ETH, earn interest from your long-term investment by placing it in a savings account.
Buy ETH via Exchanges
What is the Interest rate? How does it work?
The interest rate on ETH varies depending on the day and the exchange. When this article was written, the interest rate on popular exchanges varied from 3.1% to 8%.
The higher interest rates are offered by smaller outfits, perhaps as a way to attract investors, while more established firms tend to have lower interest rates. What you lose in lower interest rates, you gain in increased security.
Here’s how you earn interest in crypto:
First, choose a platform and create an account. Then place your ETH in that account. Once deposited, your crypto goes into a pool, where it is used to lend out to borrowers. Those borrowers pay interest, and you get a portion of it.
Invest ETH in Midas.Investments
Institutions are Pouring In
While some hedge fund managers are hesitant to invest in Ethereum and advise against doing so, there are institutions embracing it.
In 2020, Grayscale Investments, Crypto-focused corporation Digital Currency Group’s investment arm, bought 40% of the ETH mined that year.
Major players in the broader financial world, such as JP Morgan Chase, Amazon, Microsoft, and IBM, all have ETH holdings.
From a “what does it all mean” angle, this corporate buy-in could be viewed as a vote of confidence in Ethereum and its potential to increase in value.
Etherium, with its broad range of decentralized apps (dapps) and the recent growth of ETH, shows signs of strength. There are, however, definite risks, including the volatile nature of cryptocurrency. Despite that volatility and discounting a recent spike-and-readjustment in valuation, ETH continues to rise in value.