Ethereum is what is known as an altcoin. Essentially, an altcoin is any cryptocurrency other than Bitcoin. Whether you are entering the cryptocurrency market as a speculator, investor, or simply to acquire cryptocurrency in order to engage in commercial transactions, diversity in your holdings is never a bad idea.

Being behind only Bitcoin in terms of popularity, Ethereum is an excellent way to diversify your cryptocurrency holdings. It allows you to go beyond the realm of Bitcoin with relative ease and familiarity.

Purchasing Ethereum follows a path very similar to that of other altcoins. This means that options for purchasing Ethereum directly with PayPal are not numerous, but they do exist.

This guide will provide you with the basic information that you need to get started with Ethereum by using PayPal. It will also offer you insight into key background information about the Ethereum purchasing process that you can build on through your own practical experience.

1. General Background

As with any sort of financial instrument that you are planning to purchase, it is beneficial to know some basic background about Ethereum. This will allow you to be well-informed as you progress and develop further exposure to Ethereum. It will also spare you from potential headaches and scams.

Let’s start with the term “Ethereum” itself. Technically, that refers exclusively to the Ethereum blockchain — the decentralized digital platform used to route, store, and authenticate transactions. The cryptocurrency that fuels all of this is a token known as “Ether.” That means that what you will be purchasing is technically known as Ether, not Ethereum.

Its representative symbol is ETH. A representative symbol is used to easily identify Ether on pricing charts and information dashboards. If you have experience with other cryptocurrency or financial instruments, it is akin to what BTC is to Bitcoin or USD is to the U.S. Dollar. Another way to look at a representative symbol is by roughly equating it to a stock ticker symbol.

Even though in popular parlance the term “Ethereum” and “Ether” are practically interchangeable, it is good to know what the technical difference is between both terms.

2. Ether Wallet

When it comes to purchasing or otherwise transacting with Ether, one thing that will always be mentioned is an Ether wallet.

The label “wallet” is somewhat of a misnomer. It is not the location of where your Ether is being physically stored. Like all cryptocurrency wallets, Ether wallets consist of a pair of alphanumeric keys. One is your public key the other is your private key.

Your public key is what you disclose to the other party in order for them to send Ether to you. Your private key is used solely to authenticate transactions in Ether initiated by you. This is a very important distinction that you should always have in mind. While it is perfectly safe to reveal your public key — the only thing that can be done with it is for someone to send Ether to you — your private key requires intense safeguarding. If anybody were to have access to your private key they would be able to transfer your Ether to any Ether wallet of their choosing.

Ether wallets come in a variety of formats. There are software-based Ether wallets that store your keys on a specific device such as your computer or smartphone. There are internet-based wallets that keep your keys on a cloud-based digital server. Between these two types of wallets, the software wallet lacks the convenience of being accessible from anywhere on the internet, but it does give you the peace of mind that comes from knowing where your keys are physically stored. That is not to say that they would not be vulnerable to sophisticated hacking attacks, however.

For those who want to prioritize privacy and security over ease of access, there are special hardware-based Ether wallets that reside on standalone components that are not directly connected to the device that’s physically connecting you to the internet. There are also paper-based wallets that completely bypass any electronic component. We have articles that provide you further information regarding your detailed options for Ether wallets

3. Pros and Cons of Using PayPal to Buy Ethereum

There are many reasons why people would want to buy Ether with PayPal. If their banking institution or country of residence prohibits the use of credit or debit cards to purchase cryptocurrency, routing the purchase through PayPal is an ideal way to complete an Ether purchase. Likewise, if you wish to keep your credit card information private, PayPal works as an excellent buffer.

However, there are also downsides to using PayPal to purchase Ether. Under most circumstances, using PayPal to purchase cryptocurrency will not extend to you the buyer protection otherwise offered by PayPal. Also, if the base currency of your Ether purchase is not the same as the base currency of your PayPal account, your transaction will be subject to Paypal’s currency exchange rates which can sometimes be detrimental.

4. LocalEthereum

The most direct method to purchase Ether with PayPal is to use the service of a peer-to-peer marketplace known as LocalEthereum. This platform will not sell Ether to you directly, but it does bring buyers and sellers of Ether together in order for them to find each other and transact among themselves.

PayPal is one of the many payment options accepted by LocalEthereum. However, individual sellers on the platform are not obligated to accept Paypal. As a matter of fact, each seller can stipulate their own conditions regarding payment methods.

LocalEthereum offers a digital escrow service to protect both the buyer and the seller. Sellers place their Ether in escrow via a smart contract on the Ethereum blockchain. This provides proof-of-funds for the buyer to feel confident in sending payment via PayPal to the seller. Once the seller confirms having received payment, the Ether in escrow is released to the buyer’s Ether wallet. In the event of any disputes, LocalEthereum functions as the arbitrator.

LocalEthereum offers users the option of creating a free digital Ether wallet. You can choose to use that wallet or one of your own.

5. eToro

If your interest in Ether is for short-term investment purposes, another option available to you for acquiring Ether with PayPal is to use the services of an online trading platform known as eToro.

eToro allows you to open and fund your account with PayPal. Once your account is funded, you can purchase derivative financial instruments that are designed to mirror the market movements of multiple cryptocurrencies including Ether. You can also trade derivatives of stocks, stock indices, commodities, and Forex.

It should be noted that on eToro you are not technically purchasing Ether. What you are doing is opening a position in a derivative instrument. These derivative instruments are designed to mimic the market movements of the individual asset that they are representing. In other words, if you are interested in capturing the upward or downward movement of Ether on the open market, the derivatives on eToro will allow you to do so without actually holding Ether.

The fact that they are derivative financial instruments, however, means that you cannot use it as you would real Ether. You cannot withdraw it to your Ether wallet and you cannot use it to fund transactions on the Ethereum blockchain.

6. Conclusion

Ether is increasing in popularity. This means that a greater number of people will progressively be interested in acquiring it. As that happens, the number and variety of platforms that will accommodate PayPal to purchase Ether will increase. For now, the options may be limited, but as you have now seen for yourselves, they are there.

One thing that you should consider is using other methods of payment for your Ether acquisitions. If there is no overriding reason to use PayPal, you should be aware that you will have a greater number of platform choices if you use cash-based or credit card based payment methods. Make sure to read our guides covering those methods of buying Ether.