Just like other cryptocurrencies, Ethereum has had its fair share of challenges, but it continues evolving and adapting to market demands. Ethereum isn’t just a cryptocurrency, meaning it provides broader functionality than Bitcoin. It establishes a peer-to-peer network that executes and verifies application code (smart contracts) so participants can transact with one another without a trusted central authority.

While technical challenges persist, great efforts are being made to make Ethereum’s benefits tangible to its vast user base. The ecosystem is characterized by a fondness for ZK and Optimistic rollups, so Ethereum is pushing closer to decentralization and security.

Make Sure You Fully Understand the Crypto Landscape

The technical aspects of blockchain technology are complex. Ethereum has a language of its own, so it often becomes incomprehensible due to the technical terminology. Terms and phrases like “gas fees,” “DeFi,” and “cold wallets” leave the non-specialist confused. Before you jump into buying or investing in Ethereum, get educated on cryptocurrency. You should be able to explain the aforementioned concepts to family or friends.

In Ethereum, each action has a gas price, so if you send tokens or run a smart contract, you pay gas fees to process it. DeFi, or decentralized finance, lets participants use cryptocurrency to lend, borrow, earn interest, trade assets, etc. Most DeFi applications are built on Ethereum. To store, send, and receive Ethereum, you need a wallet, which can be a software-based hot wallet or a hardware-based cold wallet. As the name suggests, a cold wallet keeps your data offline.

The fundamentals offer a foundation that supports future learning, helping you gain wisdom to see the bigger picture. Besides the fundamentals, stay up to date with the current events in the cryptocurrency landscape for informed decision-making. Cryptocurrency is a fast-paced, continually evolving market, so new developments occur almost every day. Regulatory bodies are to introduce new measures to ensure stability.

Prepare For Volatility Before It Strikes

Volatility is the rate at which Ethereum increases or decreases for a given time period. The higher the volatility, the riskier it is to invest, as price movements are less simple to predict and can swing in any direction. Ethereum’s realized volatility is below that of Bitcoin, which indicates that it’s maturing and separating from the rest of the market. Nevertheless, it’s inevitable that volatility will pick back up.

If Ethereum swings between extreme highs and lows, investors and traders place more bets, therefore, causing even more volatility. Cases of extreme volatility are quite rare, so what you see in the market daily is moderate (healthy) volatility. Ask yourself if you’re comfortable with the risks before buying or investing in Ethereum. Volatility is risky, but you can use it to your advantage. It’s just that you shouldn’t trade too aggressively.

With Ethereum prices rising and falling every day, you might be tempted to sell when the prices are low. What you should do is leave your investment alone for just a little while (months or years). HODLing, as it’s commonly referred to, helps you avoid realizing loss during times of short-term volatility and gain returns from long-term future appreciation. Buy Ethereum and hold it in a secure wallet until it makes a satisfying profit and can be sold.

Limit Your Allocation to An Amount You Can Afford to Lose

It doesn’t pay to invest too much in Ethereum, so select different assets to diversify your portfolio. Having a portfolio that lacks diversification is a risk you can’t afford to take – if the price of Ethereum crashes, your portfolio will crash with it. It’s recommended to invest 5% of your portfolio in cryptocurrency, but some experts argue you should start much lower, namely with a 1% investment.

Don’t invest more money than you can afford to lose. This is true whether you’re a first-timer or an experienced investor. If you can’t afford to invest, don’t, even if you’re willing to lose, for the potential of an upside. Whatever you do, don’t use your retirement money to fund your cryptocurrency investments because you risk jeopardizing everything you have. You can make money with Ethereum, but you should reallocate some of those gains to more stable asset classes, like stocks or bonds.

Get Smart About Security

Safety is especially relevant when it comes down to Ethereum because it’s more vulnerable to cyber-attacks in the near and distant future. If you’re not interested in discovering the finer points of cybersecurity, use a custodial storage option such as an exchange wallet. You’re not responsible for protecting the private keys, so it can be a simple solution. The main disadvantage is that you don’t have complete autonomy over your wallet.

Maybe you’re looking for a more hands-on approach. In that case, opt for a non-custodial wallet, as it grants you full responsibility for managing your funds. Use the private keys to send Ethereum and accomplish other tasks; the transaction might be reflected in real-time on-chain or signed offline and uploaded to the blockchain for confirmation later on. Hardware wallets take the shape of USB devices and smart cards. Since they’re not connected to the Internet, they’re more secure.

It’s not a good idea to grant access to your devices and accounts as it can put you at significant risk. Only grant access to trusted users if absolutely necessary, but never give out login information or remote access to unknown parties. There are a lot of risks if you go down this road. If you have reason to believe your account was compromised, lock it down and contact customer support for assistance.

Concluding Thoughts

Investing in quality projects with long-term growth prospects and utility applications is of the essence, so Ethereum is an excellent choice. You can use a combination of technical and fundamental analysis before buying Ethereum; access to information isn’t an issue. Your tax return requires you to state whether you’ve transacted or not, and if you don’t answer truthfully, you’ll get into trouble. You may want to consult with a tax professional to ensure your filings are accurate.