How to buy ethereum
Ethereum, or rather ether, which is the coin of the Ethereum network, can be bought on pretty much every crypto exchange out there. Only second to bitcoin, ethereum is a major cryptocurrency, and there’s huge demand for it. (Not sure what any of that meant? Scroll down where we explain all).
But does that mean you should just buy it from anywhere? Not at all. No two crypto exchanges are the same, they cater for different types of customers and can have different types of fees.
The best way to buy ethereum is to first choose an exchange. To recap, the best options for beginners are:
- eToro¹: best trading platform to combine crypto with other assets like stocks. Plus you for following, learning from and copying other investors.
- Kraken¹: lowest cost crypto exchange.
- Gemini¹: best for safety and security, and complying with local laws.
- Coinbase¹: easiest exchange to use.
Once you’ve chosen your exchange, sign up, deposit your cash (often from a bank transfer), and then simply buy. All it takes is a few clicks, and you’ll have your first ethereum.
Note: you can try all the options if you like, and see which one you like best. It’s free to create an account with all of them.
What is Ethereum?
Ethereum is a pretty new technology, created by Vitalik Buterin in 2015 (with co-founders). After discovering bitcoin in 2012 and its underlying concept (a blockchain, explained below), they realised its potential and Ethereum was born.
Without getting too technical, Ethereum is a computer network that combines blockchain technology with computing power that allows anyone to use and build applications on, similar to the apps on your phone, and websites, but with the power and benefits of a blockchain (explained below).
Currently, lots of apps are overseen by large companies like Google and Apple – who control their own network, set the rules, collect vast amounts of individuals’ data, and take a big commission.
The difference with Ethereum is the computer power is spread out across the world, often by individuals running computers dedicated to helping run the network. This means it’s not controlled by any central organisation or business, such as Google or Apple, and is therefore ‘decentralised’ and cannot be shut down or hacked and the data cannot be changed.
For apps to run on the Ethereum blockchain, they must use something called ‘ether’ to function and operate, technically ether is used to pay for every transaction they make on the blockchain. The payment is essentially a fee that goes to those people supporting the network by providing the computing power.
This fee, technically called a gas fee, paid in ether, replaces the need to pay for expensive servers and your own computing power like companies currently do, and simply pay per transaction that goes straight to those helping to keep Ethereum running.
What is a blockchain?
A blockchain stores information in a certain order, in a way that makes it impossible to change, hack or cheat the system.
Imagine your bank statement with all of the transactions you’ve made, but instead of the bank providing it to you (who could change it, and only viewable by you and the bank), each transaction is permanently stored on the blockchain, and publicly available (your identity is still private).
It’s really that simple, but it’s the technology that does this which was a breakthrough – we won’t go into it here, but you could think of it as a technological change as big as the internet was.
You may not be thinking it’s a great invention, but wait! As you can’t cheat the system, it provides a truly accurate record on transactions, which acts as a base for other things to be built on, such as currencies like bitcoin.
And in the case of Ethereum, it has endless possibilities that don’t rely on a company in the middle to operate and provide that accurate record and service.
For instance, you could get car insurance without any insurance company involved, saving you thousands of pounds in saved middleman fees. The contract you make with the insurer would be stored as a permanent record, so if you went to make a claim and they decided the value of your car is now a lot lower, you’d have proof of what was agreed. Plus, the payment could actually be paid out automatically at the set price, without any human intervention (this is a basic example of what’s called a smart contract).
Or another example, maybe you could play a game of poker with no commission (rake) on each hand taken by the casino. The possibilities really are endless, it has the potential to change every industry in the world.
What’s the difference between Ethereum, ether and ETH?
- Ethereum is the network, or technically the name of the blockchain.
- Ether is the token (or coin) of the Ethereum network that is needed in order to make a transaction. The transaction (gas) fee is paid in ether.
- ETH is used to represent the ether token on exchanges. It is the ‘ticker’. Just like companies on a stock exchange, for example Apple is AAPL.
Is Ethereum legal in the UK?
Yep! Ethereum, the blockchain and ether (the token), and actually, all cryptocurrencies are perfectly safe and legal to use in the UK.
In fact, the UK is a big supporter of crypto and intends to build a technology hub to support crypto and blockchain development in the UK. Feel free to read about how the Government is planning to make the UK a global cryptoasset technology hub.
Tax wise, once you purchase your ethereum (ether), and if you make a profit, you may be liable for Capital Gains Tax (CGT), which is 20% of your profits. However, the good news is you are only taxed after you make £12,300 in profit each year (in total across all of your investments).
Can I buy ethereum with British Pounds (GBP)?
Yep. Most big exchanges (places where you buy and sell crypto and other things like stocks and shares), will allow you to buy with almost any currency you like. If you’re paying with a card you might have to pay a foreign exchange fee though.
How does Ethereum work?
Ethereum has apps and websites running on its network, these are called decentralised apps, or dapps. And you interact with the apps, rather than Ethereum itself.
You often won’t even notice you are using the Ethereum network – think of Ethereum as the plumbing and pipes behind the scenes, you just use the tap to fill the kettle for a nice cup of tea.
The main categories for dapps are finance (often called decentralised finance, or DeFi), gaming, arts and collectables (such as NFTs, or Non-Fungible Tokens), and technology in general.
Some dapps and projects have their own coins, just like ether, which run on the Ethereum blockchain, which you can buy and trade, with your own wallet, or using a crypto exchange too.
You use these dapps by using a ‘wallet’, that connects directly to the network, which is just like an email account you might use to send and receive emails.
What’s a wallet?
To interact with apps on the Ethereum blockchain, you’ll need your own wallet. This is effectively like a bank account combined with a passport. It can take you anywhere in the world of Ethereum, and holds some of your crypto too, which you’ll need for most apps.
You can store your crypto on the exchange to start with, and send it back and forth to your wallet as and when you need.
Where do you get a wallet?
Wallets are much easier than they might sound. You can get a wallet with most of our recommendations above, so you can use the same platform where you’re buying ethereum, to manage your wallet too.
So your options for wallets are:
Note: you can have more than one wallet, so try them all and see which one you get on with best. It’s free after all.
You also can get a wallet from places other than those listed, however if you’re completely new to crypto, it might be best to start with an easy-to-use and understand wallet with a company suited more for newbies, like the ones above.
And that’s the basics of Ethereum
There you have it, pretty much everything you need to know about the basics of Ethereum and how to buy your first ethereum. There’s lots more to Ethereum, and the incredible innovation that’s being developed, and it can feel overwhelming, but the more you learn, the more comfortable you’ll be. The best way to learn is just to get stuck in! Good luck!
You can also visit the Ethereum website to learn more and if you’re a bit more technical, here’s the Ethereum whitepaper.
If you're completely new to investing, we've got a guide to investing for beginners (UK) too.