Unlike Bitcoin, Ethereum is not only a cryptocurrency. Ethereum is a platform upon which many types of Blockchain-related applications can be built. When people refer to “buying Ethereum”, what they are actually buying is “Ether” or “ETH”, a tradable token designed to fuel the ecosystem of the Ethereum Blockchain, although it can also be used in similar ways to a traditional currency (both crypto and fiat).
How to Cash Out of Ethereum
Assuming you are not a developer looking to fuel your project on the Ethereum Blockchain, you, or any ETH investor, can use ETH tokens much like any other asset. Here are some of the ways to utilize the buying potential of your ETH tokens:
Trade ETH with other Crypto-assets on an Exchange
ETH is one of the most popular crypto-assets in today’s market. This is a big deal in the crypto world because there are now hundreds of alternative tokens within the Blockchain ecosystem. These “altcoins” fluctuate wildly in value, sometimes thousands of percentile points in a day, and buying or selling these coins in the hopes of making big profits has become a common practice. Once you have an Ether wallet, the process of trading your ETH is as simple as signing up to your exchange of choice, seeking out your desired trades, and then executing them. You can also trade ETH for Bitcoin, or other crypto-assets such as Litecoin, Ripple Dash etc. via most online exchanges.
Participate in an ICO
An ICO, or Initial Coin Offering, is a process by which a new project sells their newly-minted crypto-tokens, often in exchange for Bitcoin or ETH. This is similar to crowdfunding, or an IPO (Initial Public Offering) where a start-up sells to initial shareholders. IPOs are designed to give start-ups the venture capital they need to succeed in making their project a reality. This appeals to ETH holders because they can trade their ETH for a portion of a company’s crypto-assets at a discounted price against what the assets *may* be valued at when the new tokens are made public. If all goes well, the owner of these new tokens can choose to sell when the project goes public, and if the project gains traction in the market, this can generate a hefty profit. If things don’t go well, however, and the new tokens are deemed worthless by the market, the ICO participants are liable to lose.
Trade Ether for Goods and Services
As with Bitcoin and other liquid crypto-assets, ETH can be traded with anyone who has an associated wallet address. The Ethereum Blockchain is very good at facilitating peer-to-peer transactions, and it is much cheaper and faster than the Bitcoin Blockchain. ETH also has the added benefit of utilizing “smart contracts”, an innovative process that programs certain parameters into a transaction, and then requires these prearranged agreements to be met before funds can be exchanged. This eliminates the need for the involvement of a third party, such as a lawyer or banking institution. This allows you to search within your own community, or utilize online P2P (peer-to-peer) marketplaces to seek out individuals who have goods, services, and even fiat currencies that you may want to trade your ETH for. (More on this option below.)
Exchange ETH for “Real” Money (Fiat Currencies)
Exchanging your ETH for fiat currencies is a fairly straightforward process. The most common practice is through an established online exchange. The first step is to find an exchange that can provide you with your desired currency in exchange for ETH. Once you settle on an exchange, you can then simply follow their instructions for setting up your account. Quite often, you will need to verify your identity in order to tie the exchange to your bank account, although some exchanges will facilitate small withdrawals without identity verification to maintain the anonymity that some cryptocurrency users value.
Another popular option is to convert your ETH via a prepaid debit card. There are plenty of options available and once funded, the cards work almost identically to the traditional debit cards you are familiar with. Some of these cards are tied directly to software wallets, meaning you can spend the ETH stored in your wallet at any time, anywhere. Others require you to submit an ETH payment to an account, sometimes referred to as “recharging” your card, prior to use.
More uncommon methods of exchange include using peer-to-peer marketplaces, where users freely exchange their assets with each other within a secure and encrypted environment, bypassing the need for a third-party exchange. Think of this as an online forum where you deal directly with other individuals looking to trade their goods, services, and assets, including fiat currencies. Of course, you can always try to find someone who wants to buy your ETH directly from you within your local community, as a personal transaction between consenting parties.
Remember to be always aware that any exchange of ETH to fiat is considered a taxable event in most nations, and you will be required to remit taxes in accordance with your country’s regulations if and when you realize a profit.