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What Is Ether (ETH)?
Ether is the native cryptocurrency used in Ethereum’s blockchain. It has several uses: It is used to pay network participants for their contributions to the blockchain. Investors use it as a store of value, and traders use it to take advantage of price movements. Consumers can use it to pay for goods and services at businesses that accept it.
Learn more about ether and how it acts as the fuel that powers the Ethereum blockchain and network.
Key Takeaways
- Ether is the native cryptocurrency of the Ethereum network, acting as “fuel” for its operations.
- Ethereum’s blockchain enables decentralized applications, removing third-party control from financial systems.
- Validators on Ethereum stake Ether to host nodes and are rewarded with new Ether.
- Unlike Bitcoin, Ether is used as validator collateral and has no hard cap on supply.
- Gas fees, paid in Ether, are essential for transactions and smart contracts on the Ethereum network.
An Overview of How Ether (ETH) Works
The Ethereum blockchain is a distributed ledger designed as a platform that makes it easier for people to create decentralized applications. Additionally, it was created to remove third parties from global financial systems and transfer monetary control to the people instead of governments and businesses.
A distributed, worldwide virtual computer hosts the platform and the blockchain. It uses nodes (the remote hosts), a consensus layer, an execution layer, an application layer, and participants who provide the equipment necessary for hosting the virtual machine.
Running a host on the network is inexpensive, but validators must stake their own ether to participate. Validators receive a chance to validate transactions and earn a reward for their work, issued in ether (ETH).
Important
Ether also holds market value and is exchangeable for fiat currency on cryptocurrency exchanges. Ether is thus a native cryptocurrency, investment asset, and a means of exchange.
The developers and community metaphorically refer to ether as the “gas” that powers the network. It is called gas because ether is exchanged for the work done to verify transactions and secure the blockchain, much like money spent to buy the gas that powers a car.
Comparing Ether (ETH) and Bitcoin (BTC): Key Differences
While ether and bitcoin are cryptocurrencies, they have many distinguishing differences.
Note
This discussion is strictly about the token differences, not the blockchains.
Understanding Ether Denominations and Units
A bitcoin can be broken down into smaller denominations called satoshis. One bitcoin is equal to 0.00000001 satoshi, so there are 100 million satoshi per bitcoin. You might see denominations of bitcoin referred to as mBTC, or milli Btc. In this case, 1 mBTC is 0.001 bitcoins, or 100,000 satoshi.
Ether consists of several denominations, some of which are much smaller (incrementally) than a satoshi. One ether is equal to:
- 1,000,000,000,000,000,000 Wei
- 1,000,000,000,000,000 Kwei
- 1,000,000,000,000 Mwei
- 1,000,000,000 Gwei
- 1,000,000 Szabo
- 1,000 Finney
- 0.001 Kether
- 0.000001 Mether
- 0.000000001 Gether
- 0.000000000001 Tether
Internal Uses of Ether on the Ethereum Blockchain
Bitcoin and ether both have uses on their blockchains. They are both used to pay and reward participants for work done. However, ether has an additional use—it is used as validator collateral.
When a user wants to become a validator and receive payments for blockchain work, they must lock ether in a process called “staking.” Staked ether is locked and can’t be spent. Unethical actions can result in the forfeiture of the staked ether.
Note
Investors may soon be able to invest in eight different spot ether ETFs as the Securities and Exchange Commission (SEC) in May 2024 approved a rule change to list and trade shares of these ETFs.
Validator Rewards and Incentives in the Ethereum Network
On the Ethereum blockchain, participants with enough ether staked are randomly chosen as validators and receive ether as a reward. Bitcoin is given as a reward for opening a new block on the blockchain.
Validators on Ethereum earn new ether tokens and user tips. New ether tokens are awarded at a rate of about 1,700 ETH per day per 14 million ETH staked.
Circulation and Supply: Ether vs. Bitcoin
Bitcoin’s supply is capped at 21 million coins, with the final ones expected by 2140. The blockchain is also programmed to split rewards in half every 210,00 blocks (roughly four years).
Ether is limited to a total supply of 120 million. When transactions are paid for in ether, the fees are “burned”—sent to an address with no keys. The network mints new ether and pays the validators, maintaining a balance of about 1,700 new ether issued per day.
How High Are Ethereum Gas Fees?
On May 27, 2024, the average gas fee (which varies) was 13 gwei, or about $0.99.
What Is the Gas Fee in Ethereum?
Gas fees are fees paid for transactions, such as transferring ether to someone to pay for an item or creating smart contracts.
Who Earns Ethereum Gas Fees?
Ethereum gas fees consist of two portions: a block base fee and a tip. The block base fee is burned after the transaction, and the tip is received by the randomly chosen validator.
The Bottom Line
Ether is the native cryptocurrency for the Ethereum blockchain. At its base level, it functions as an on-chain payment method for the Ethereum blockchain and applications developed using it. Externally, ether is a cryptocurrency, generally accepted as a unit of account, a medium of exchange, and a store of value.
Bitcoin and Ether are both popular cryptocurrencies, but they differ in what they were designed for. Bitcoin and its blockchain were created to serve as a supplemental payment method, enabling people to transfer value without regulatory bottlenecks. Ethereum and ether were created to do this, but with the additional ability of allowing people to create applications that used the blockchain for various purposes. Ether also plays a part in securing the Ethereum network and blockchain through its staking mechanism.
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