Dear Reader,
It used to be significantly harder to buy Ethereum than Bitcoin. But the gap has narrowed and continues to do so.
Today, you can buy Ethereum on many of the same outlets where you can buy Bitcoin, such as Kraken, Poloniex, and, of course, Coinbase.
The best way to buy Ethereum today is from Coinbase, which allows you to link to a checking account.
I've been using Coinbase going on three years now, since after I met the firm's CEO in Silicon Valley.
There are two ways you can fund your account. The first, as I mentioned, links directly to your bank account. This can take a few days to set up and have Coinbase verify all of your information.
The second is to link to a credit card. This will also require confirmation that the account is yours before you can proceed. Coinbase will debit either your credit card or bank account with a roughly $1 charge that it then reverses. To prove the account really is yours, you will need to know those precise amounts the next time you sign in.
With a credit card, you are at first limited to buying $500 in either Bitcoin or Ethereum in any one week. However, you can increase that limit by uploading images of the front and back of your driver's license. I recommend you do that so you can bump up your trading sizes and also add another layer of security.
One of my team members went through this process when I first started talking about Ethereum as a potential rocket ship of an investment. It took him less than 10 minutes.
As should be obvious, Coinbase is all about keeping your data and money safe. That's why I use two-factor authentication. When I log in, I automatically receive a text to my smartphone with a security code. Without that code, I can't make any trades.
One more feature I like is the mobile app. Download this to your smartphone and you can check the prices of both Bitcoin and Ethereum in real time just by launching the dashboard.
There, you will see the latest prices for Ethereum and Bitcoin and how much they've changed in the past 24 yours. You also can check the chart for either e-currency, covering periods of from one hour to their entire history.
The app also outlines account balances for dollars, Bitcoin, or Ethereum held at Coinbase. It also allows coin holders to buy or sell right from the dashboard.
So, while setting up the account might not be as quick and easy as you'd like, for my money the trading features and security are worth it.
Also, remember that "Ethereum Classic" is being phased out. Don't buy it.
Like Bitcoin, Ethereum can also be mined at virtually no financial cost. However, doing so is beyond complicated and requires that fastest web speeds in the world to pull off. Moreover, Ethereum has announced plans to go off the sort-of mining standard completely by 2018.
But, yes, you could mine ethers. But, as the saying goes... "just because you can doesn't mean you should."
While Bitcoin mining has become an arms race among large operators around the world willing to spend tens of thousands of dollars on dedicated equipment, Ethereum mining has safeguards against that. It's possible to mine Ethereum with a PC that has a moderately powerful GPU (graphics card).
But there is a catch. The Ethereum developers are planning to switch how the cryptocurrency is created from "proof of work" to "proof of stake." And that will end Ethereum mining as it is done now.
With proof of work, miners must solve a difficult mathematical puzzle to earn a five-ether reward. The miners also confirm all the transactions on the network.
With proof of stake, anyone wishing to earn mining rewards must put up a stake - a portion of the Ethereum they hold. The stake remains locked up as long as they continue to mine. The network assigns blocks needing validation to stakeholders based on how much money they've committed.
So an Ethereum validator with a stake of $20,000 worth of Ethereum would get twice as many blocks as one with a $10,000 stake. The five-ether reward for validating the block remains the same as with proof of work.
The Ethereum developers say they want to switch because the proof-of-work arms race results in a correspondingly large increase in electricity consumption to maintain the network. It also results in mining centralization, as fewer and fewer players can afford to stay in the arms race. That's what's happened with Bitcoin.
If you have a suitable GPU, you could mine Ethereum now, but the switch to proof of stake will radically change the rules. The timing of the switch has been pushed back several times, with sometime in 2018 now most likely.
While Bitcoin is trading near record highs, it took a bumpy ride to get there.
And Ethereum's history from here on will likely play out similarly.
So I'd advocate allocating just a small portion of your portfolio to Bitcoin - like you would gold or silver - no more than 1% to 2% for anyone except the true gamblers out there.
Don't invest more than you can afford to lose at risk.
That said, cryptocurrency as a concept isn't going away. And those that gain traction, like Bitcoin has and Ethereum will, should continue to increase in value over the long haul.
One final warning: The Internal Revenue Service (IRS) treats cryptocurrency as a commodity, not a currency. So you need to keep very accurate records of when you bought and what you paid so you know your cost basis when you sell it. In that sense, Bitcoin and Ethereum are a lot like other types of investments.
The difference is that you must do all the record-keeping - without the help of a broker.
We're still in the earliest stages of a global shift toward Ethereum and its underlying technology: the blockchain. That means this is a trend with many years of growth ahead.
