January 30, 2023 9:49 am in Alt Coin

Buying and Storing Ethereum: An Introduction

Ethereum is a decentralized, freely available blockchain network that provides a digital space for exchanging cryptocurrency and digital applications. Ethereum is also used as another name for ether (ETH), the network’s native cryptocurrency that facilitates all operations and transactions on the Ethereum blockchain.

Setting up an Ethereum Wallet

How to Store Your Ethereum

When you’re new to Ethereum, storing a small amount of ether in an exchange account is okay. However, it’s safer to keep your funds in a digital wallet.

Setting Up Your First Ethereum Wallet

An Ethereum wallet allows you to manage your ether and other digital assets on the Ethereum blockchain network. It uses private key technology to secure and grant access to your digital holdings. Many wallets store ether, each with different associated features and risks. Depending on the wallet you choose, you can send and receive funds, keep track of your balance, create smart contracts, interact with decentralized applications, hold nonfungible tokens (NFTs), play games, and more. Some wallets are more secure than others.

If you’re new to Ethereum, you may want to keep things simple by investing in a wallet or wallets that will allow you to store, buy, and spend ether. Any wallets you choose should be easy to secure, use, and maintain. The setup process will involve buying or downloading and installing your wallet, providing the information required to set up your account, generating and storing a private key, setting up additional security features, and funding the wallet with a cryptocurrency deposit.

What Types of Wallets Are Available for Use?

Before you get started, you should understand the types, characteristics, and functions of different kinds of wallets. Wallets can be software- or web-based “hot” wallets that connect to the internet, or they can be hardware- or paper-based “cold” wallets, which are always kept offline.

Hot Wallets

Hot wallets allow you to access your account whenever and wherever you are online. A hot wallet can be a software wallet installed on a desktop computer or a mobile device that connects to the internet via wifi or a cellular network. It may also be a web wallet that operates in the cloud or a password-protected browser extension wallet that stores your encrypted private keys in the browser software installed on your machine.

Light Client Wallets vs. Full Node Client Wallets

Some software-based hot wallets run on light clients, which store only the part of the blockchain they need to make transactions. Light clients use mined data to verify your identity, so you can access your wallet using a cellular connection without downloading the whole blockchain. Other software-based hot wallets require the installation of a full node client that stores the entire Ethereum blockchain in memory. Full node client wallets are more secure than light client wallets because they can validate transactions without using the information provided by miners.

There are different types of hot wallets, including:

Desktop Wallets

Desktop wallets are usually full-node software wallets that run on familiar desktop operating systems. These wallets allow you to manage your ether and store your private keys in one place on a machine that you control. If your private keys to a desktop wallet are stored on your device instead of an external server, they may be vulnerable to attacks by hackers if they are not adequately secured.

Mobile Wallets

Mobile wallets are light client apps you can download and install on your phone or tablet. It would be best to store your keys on the device or in software backups. Unfortunately, mobile wallets can be susceptible to hacking, but regular backups protect your account and funds.

Web Wallets

Your wallet, accounts, funds, and associated assets are stored in the cloud. Web-interface wallets allow you to use a web browser to connect with their accounts and the Ethereum blockchain. Web wallets can be accessed from anywhere in the world, but they can be risky because you have to trust a third party with the private keys to your account. If the host that holds your wallet falls prey to a phishing scheme or domain name system (DNS) attack, your funds could be vulnerable to loss.

Browser Wallets

Browser wallets are desktop browser extensions allowing you to store and use Ethereum to interact with decentralized applications and blockchains. Since browser wallets store your encrypted private keys in the browser software installed on your machine, they can offer a safer alternative to web wallets that keep your keys in the cloud.

Cold Wallets

Cold wallets, such as hardware and paper wallets, store your data offline to protect your private keys from being compromised by malware attacks and other hacks. Because funds and data must be manually transferred from a cold wallet to another wallet, device, or exchange before making transactions, moving your funds may initially feel slow and inconvenient.

Hardware Wallets

Hardware wallets keep your private keys and digital assets offline. To access your account and move funds, you must connect the device to a computer and gain access with your designated form of authentication. Your accounts will be protected as long as hardware wallets are stored securely and the device and password are kept hidden from malicious third parties.

Paper Wallets

Paper wallets are created by generator apps that remove your existing private keys from their current location and print them, along with an associated QR code, onto some scannable or human-readable medium like paper or titanium. To use the codes with a wallet app, you scan the paper wallet with your mobile device to make changes in your software wallet.

To protect your paper wallet from attack, theft, loss, damage, destruction, misplacement, or disposal, you should store it in a secure location, like a safe. A malicious third party must access your wallet to compromise your account. If your paper wallet is lost or destroyed, the assets in the associated accounts are permanently lost.

How to Choose a Wallet That Works for You

Before you can set up a wallet, you need to decide which type is best for you. You can then use one or a combination of several wallets that meet your needs. Each kind of wallet has different advantages, drawbacks, and risks. No matter what type of wallet you choose, relevant information related to your accounts will be permanently recorded on the Ethereum blockchain when you make a transaction.

When you are new to Ethereum, using a combination of both hot and cold wallets can be an excellent way to stay safe. You can store most crypto funds and assets offline in cold wallets while using hot wallets for daily transactions and short-term storage of small funds.

Once you procure and install your wallet, you must create a private key and a seed phrase known only to you. Your seed phrase is your master password that grants access to your wallet and all the assets it stores, including your funds and private keys. Your private key protects and allows you to send or spend Ethereum. Store your key in a secure encrypted file or as a hard copy. Never give anyone access to your private key or use a third-party program to store it. Anyone accessing your private key can also access your wallet and your funds.

Funding your Ethereum Wallet

You will need a store of ether to spend or take action on the blockchain. After installing, accessing, and securing your Ethereum wallet, you should add funds to use in the marketplace. You can buy ether on centralized exchanges and withdraw it to your wallet. Exchanges and other online marketplaces can be reliable sources for buying Ethereum.

How to Buy Ethereum?

Ethereum is a popular, widely accessible cryptocurrency. There are many ways to buy, store, and trade ether as an investment or currency.

Choose a Cryptocurrency Exchange

If you’re new to Ethereum, you can start your journey by purchasing ether at a crypto exchange in your region. Exchanges are the most accessible way to trade and learn about Ethereum. Most are easy to use and display helpful information, breaking news, and the current value of Ethereum and other currencies. Research available exchanges to ensure they are valid, trustworthy, and compatible with Ethereum and any other fiat or cryptocurrency you may want to trade. You should also consider the transaction fees charged by the exchange, which can vary based on several predetermined factors.

Next, choose an exchange and create an account. When joining a cryptocurrency exchange, you must provide personal information, like a driver’s license, as identification. Some exchanges require more documentation than others, but most of the time, you will at least need to provide your real name and link a bank account, debit card, or credit card to your account to buy ether.

Decide how much ether you’d like to buy and choose your payment method. When you complete the purchase, the platform will display the amount of ether you own as a percentage of the total ether. As soon as you supply funds to your exchange account, you can start trading or store them off the exchange in your wallet.

Many exchanges allow you to swap dollars for ether and vice versa. To comply with anti-money laundering (AML) and know your customer (KYC) regulations, you may need to provide additional documentation if your transactions surpass a prescribed limit.

Use Peer-to-Peer Exchanges, Cash, and PayPal

Peer-to-peer (P2P) exchanges are marketplaces that use smart contracts to allow over-the-counter (OTC) trading of local currencies for Ethereum. These platforms typically utilize escrow features, KYC, and AML processes. You must also make sure to comply with your local regulations.

You can also use cash or PayPal to trade ether directly. These trading modes can be risky if you don’t know your trading partner.

Keeping Your Ethereum Safe: Best Practices

You should follow several best practices to keep your Ethereum accounts and assets safe, like using two-factor authentication (2FA) and storing funds in cold wallets.

Two-Factor Authentication

Although most exchanges provide wallets for storing, sending, and receiving ether, losing your funds to a hack or fraudulent activity is possible. Even insured funds can be lost or take time to return. Add two-factor authentication (2FA) to your account to provide an extra security layer. 2FA uses an app to generate a unique, randomly generated, one-time-use code with your username and password to access your account. To sign in, you need the most recently generated code. An attacker needs the latest code, username, and password to compromise your account.

Cold Storage

Since exchange-hosted wallets and other hot wallets are vulnerable to direct attacks, many people store their funds in self-hosted hardware cold wallets that provide them with more control over their assets. These devices store your data offline and are typically encrypted to provide an extra layer of safety.

Take All Necessary Action to Protect Your Ethereum

You can implement additional safety steps, secure your backup seed phrase, and educate yourself about keeping your assets safe. All actions taken on the Ethereum blockchain are permanent and irreversible. One mistake can lead to losing your funds forever. Please make sure to double-check all the details before confirming a transaction to make sure your funds will arrive at the correct address.

Understanding Basic Concepts Related to Ethereum

What Are Smart Contracts?

Ethereum transactions are made viable through smart contracts, which are lines of computer code that establish the terms of exchange and compel participants to abide by them. A smart contract is a unique business software that enables two parties to initiate and carry out a transparent and unalterable agreement without a third-party intermediary.

Intelligent contracts are decentralized applications (dApps) that operate on the blockchain to accommodate any number of participants from any location because smart contracts can be significant; the blockchain stores an index that points to the actual smart contract stored on its creator’s server.

What Is Decentralized Finance?

Decentralized finance (DeFi) allows individuals and businesses to conduct financial transactions in an evolving space made possible by secure distributed ledgers. It uses peer-to-peer networks to enable economic exchanges independent of third-party intermediaries and associated fees. Defi eliminates geographic restrictions to increase access to financial services. Any person who has access to an internet connection can use DeFi to lend, trade, borrow, and transfer funds from a secure digital wallet in very little time. All financial actions are recorded and verified in the distributed ledger.

Defi uses P2P lending to provide loans to individuals anywhere in the world. Any two parties can directly negotiate the terms of a loan agreement, which typically has low fees and high-interest rates. Payments are made using digital applications and are recorded on the blockchain.

Defi transactions are secure and transparent because they are facilitated by intelligent contracts publicly available on the blockchain without revealing your identity. Trades are never fully anonymous because authorized entities, including governments, can access and trace a signee’s identity to uphold the law and protect an individual’s assets.

Decentralized finance is a complicated, continuously evolving, unregulated space that can suffer from hacks and scams. Defi platforms are autonomous exchanges that are not at risk of bankruptcy but carry risks. Infrastructural issues have also been known to affect system stability.

What Are Gas Fees?

Any signed data package sent between accounts on the Ethereum blockchain is a transaction paid for with ether. Gas is the cost of engaging in a trade or executing a contract on the network. Users pay gas fees to the Ethereum validators, who process these transactions in exchange for verifying blocks and staking their ether. These transaction fees, priced in fractional denominations of ether called gwei (10^–9 ETH), pay for the resources required to operate the system and maintain its integrity.

A transaction cost is calculated by multiplying the gas limit, which designates the maximum possible amount of work to do, by the gas price, which means the price per unit of work completed. Users can add tips to the gas price to speed up the transaction.

Gas prices vary with the demand for space on the network when the transaction is made. Prices rise when the network is congested and fall when traffic is light. Software wallets can help users avoid overpaying for gas by providing fee estimates based on the most recent demand statistics for space on the blockchain.

Tips for Keeping Your Ethereum Safe and Secure

Avoid Scams

Phishing Scams

Phishing scams are common attempts to steal money from your wallet. Please be careful if you receive an email or another message from an unfamiliar address that asks you to click on a link. Scam links compromise your account by directing you to a phony website. Next, they request ether or ask you to enter your seed phrase and reset your password. Clicking on a link could also infect your computer with malware that makes your data vulnerable. Bookmarking any exchanges or DeFi applications you use often can help avoid phishing schemes.

Other Common Scams

Scams come in different forms but are fundamentally the same. Social media hacks, celebrity giveaway scams, support scams, token scams, broker scams, mining pool scams, and airdrop scams are just schemes that prey on new, unwary users by tricking them out of their funds. In general, protect yourself by taking the following precautions:

Never open a link or attachment from an unfamiliar email address.
Ignore or delete emails from senders you do not recognize.
Never share your personal information, keys, or passwords, and keep them secure.
Be cautious. Any offer of free or discounted ether is likely to be fraudulent.
Before you use a new service, search the web for the name of the service plus the word “audit” to verify its legitimacy.
If an offer looks too good to be true, research it or ignore it.

Keep Your Software Updated and Current

Finally, make sure you install software updates regularly. Out-of-date software can be more susceptible to malfunctions and security breaches. Hackers may have an easier time exploiting systems that aren’t properly patched.

Recap:

Buying Ethereum:

Choose a reputable exchange or broker to buy Ethereum (e.g., Coinbase, Binance, etc.)
Verify your identity on the platform.
Fund your account with fiat currency or transfer cryptocurrency.
Place an order to buy Ethereum using a market or limit order.

Storing Ethereum:

Consider using a hardware wallet for maximum security (e.g., Trezor, Ledger, etc.)
Create a digital wallet to store your Ethereum (e.g., MyEtherWallet, MetaMask, etc.)
Transfer your Ethereum from the exchange to your digital wallet.
Keep your private keys safe and secure.

Ethereum FAQs:

What is Ethereum, and how is it different from Bitcoin?

Ethereum is a decentralized, open-source blockchain platform that enables the creation of decentralized applications and smart contracts. It is different from Bitcoin in that it focuses on smart contracts and decentralized applications, while Bitcoin focuses on being a store of value and digital currency.

Is it safe to buy Ethereum?
A: Buying Ethereum is generally considered safe if you use reputable exchanges or brokers and store your assets securely. However, there are always risks involved with investing in cryptocurrency, so it’ant to do your research and understand the risks before making any investment decisions.

How can I buy Ethereum?
A: To buy Ethereum, you can follow these steps:

Choose a repu,table exchange or broker (e.g. Coinbase, Binance, etc.)
Verify your identity on the platform.
Fund your account with fiat currency or transfer cryptocurrency.
Place an order to buy Ethereum using a market or limit order.

What is the best way to store Ethereum?
A: The best way to store Ethereum is to use a hardware wallet, such as Trezor or Ledger. Alternatively, you can use a digital wallet, such as MyEtherWallet or MetaMask, to store your Ethereum.

How do I transfer Ethereum from an exchange to my wallet?
A: To transfer Ethereum from an exchange to your wallet, you will need to:

Connect your digital wallet to the exchange.
Specify the Ethereum address of your digital wallet.
Initiate the transfer from the exchange to your wallet.

What is the difference between a hot wallet and a cold wallet?
A: A hot wallet is a digital wallet connected to the internet and can be used to store and manage your cryptocurrency assets. On the other hand, a cold wallet is a type of wallet that is not connected to the internet and is used for maximum security. Examples of cold wallets are hardware wallets, such as Trezor and Ledger.