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While Bitcoin is the most valuable cryptocurrency in terms of the number of coins in circulation, Ethereum isn't far behind. It's the second most valuable cryptocurrency, with a market capitalization of over $232 billion, and it's backed by business moguls like Mark Cuban. It has proven to be a profitable investment. If you had invested $1,000 in Ethereum in August 2015, it would now be worth $2.23 million, almost six years later. Here's how to get started buying Ether, the official name for the token that's more commonly referred to as Ethereum because of its connection to the Ethereum platform.

It may be simpler than you think to invest in Ethereum. In just five easy steps, you can get started:

1. Determine Your Level of Risk

There's no avoiding the fact that purchasing Ethereum is a risk. While all investments carry some risk, cryptocurrencies are susceptible to price fluctuations. Consider the impact a few hundred characters can have on cryptocurrency pricing: The value of Bitcoin dropped 15% after Elon Musk tweeted that Tesla would no longer accept Bitcoin as payment. Although Ether has had some impressive returns in the past, it has also experienced some significant crashes, sometimes in a matter of minutes.

It dropped from nearly $4,000 per coin in May 2021 to less than $1,800 per coin in June 2021. If you bought at the peak, you'd be sitting on half the value in less than a month. That's a lot of unpredictability. That's why, before buying Ether, think about your risk tolerance and the diversity and stability of the rest of your investment portfolio. Experts advise never investing more in cryptocurrency than you can afford to lose.

2. Choose a Crypto Exchange

Purchasing Ether via your current brokerage account is a little more complicated than purchasing stocks or mutual funds. Cryptocurrencies aren't traded on major stock exchanges like the NYSE, and many brokerages don't offer crypto investing.

To purchase cryptocurrency, you must first open an account with a crypto exchange. In terms of functionality, it's like the brokerage platforms you're probably more familiar with: buyers and sellers can trade fiat currencies like dollars for cryptocurrencies like Ethereum, Bitcoin, and Dogecoin on cryptocurrency exchanges.

If you don't already have one in mind, check out our list of the best cryptocurrency exchanges to find the right one for you. While some exchanges' trading platforms can be complicated, most of them provide a simple purchase interface for beginners, though it may charge higher fees than their trading platform. Here are a few key points: Make sure the exchange you choose has a crypto wallet where you can store your funds. The vast majority of them do, but if yours doesn't, you'll have to get one. You can also use a platform like Robinhood or Cash App if you're a complete beginner.

This will make purchasing cryptocurrencies easier for you, but there is a catch: You can't take your Ethereum investment and put it in a third-party wallet or use it to pay for things online. If you buy crypto on one of these simplified platforms, they can only trade your crypto on that platform. As a result, you'd have to cash out of that platform and then repurchase it on a cryptocurrency exchange to keep it in a separate wallet.

3. Fund Your Account

Before you can buy Ethereum on a cryptocurrency exchange, you must first fund your account. You'll most likely deposit funds from a bank account, such as your personal checking or savings account. You can also make wire transfers, use a debit card, or make a PayPal deposit. Examine the crypto exchange's fees when deciding on a funding method; they can vary depending on the method. Wire transfers, for example, are free on Gemini, but debit card transfers are charged a 3.49 percent fee. One word of caution: some platforms allow you to purchase cryptocurrency with your credit card. While this may appear appealing, cryptocurrency purchases are cash advances by credit card companies. You may have to pay a higher interest rate and a cash advance fee on top of the crypto exchange fees, depending on the card you have.

4. Buy Ethereum

Market hours limit your ability to buy stocks, mutual funds, and exchange-traded funds (ETFs). Nasdaq, for example, is open from 9:30 a.m. to 4:00 p.m. ET, and it is closed on weekends and certain holidays. Ethereum and other cryptocurrencies work uniquely: You can buy and sell them because they're decentralized currencies. To buy Ethereum, type its ticker symbol—ETH—in the "buy" field of your exchange and the amount you want to spend. You can buy a fraction of an Ethereum token if you don't want to buy a full coin or don't have enough money in your account to buy one. For example, if Ethereum is worth $2,000 and you invest $100, you will receive 5% of an Ether coin. It's the same as when you buy a fractional share of a stock.

5. Store Your Ethereum

After your Ethereum purchase has been completed, you must store your cryptocurrency. While some platforms will store it for you, some people prefer to keep their investments on their own to reduce the risk of losing them to a hack. This is understandable, but it's also worth noting that most major exchanges insure their clients' assets and frequently store most their assets offsite to avoid massive theft. In the past, hacked exchanges have reimbursed any losses. However, if you want to keep your crypto safe, you can move it to one of two types of third-party wallets:

Hot Wallet: A hot wallet is connected to the internet and can be accessed from a computer or smartphone. They’re convenient and are usually provided by cryptocurrency exchange platforms at no additional cost, though you can also use your own if you’d prefer having your crypto off of the exchange. However, because they’re still connected to the internet, they’re at a higher risk of security breaches.
Cold Wallet: Cold wallets, meanwhile, are external devices completely disconnected from the internet. Depending on the type you choose, they usually cost between $50 and $200, though there are even more expensive versions available. While cold wallets are less convenient than hot wallets—you have to manually connect them to the internet each time you want to access your crypto—they’re safer and may make sense if you own a significant amount of Ethereum or other cryptocurrencies.

Selling Ethereum

Return to your crypto exchange and enter the amount you want to sell to sell your Ethereum. However, if you're selling a large amount of cryptocurrency, seek advice from a tax professional. Crypto is taxable in the eyes of the federal government, despite its decentralized nature. The profits from the sale are usually subject to capital gains taxes, which can have a big impact on how much money you owe the IRS at tax time.

Should I Buy Ethereum?

Simply return to your crypto exchange and enter the amount you want to sell to sell your Ethereum. Consult a tax professional if you're selling a large amount of cryptocurrency. Cryptocurrency is taxable in the eyes of the federal government, despite its decentralized nature. The profits from the sale are usually subject to capital gains taxes, which can have a big impact on how much money you owe the IRS when tax season rolls around.