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What Is Ether (ETH)?
Let me explain what Ether is—it's the cryptocurrency that runs on Ethereum's global virtual machine. You can use it in a few key ways: to pay network participants for their work on the blockchain, as a store of value if you're investing, to trade on price changes, or even to buy goods and services where it's accepted.
If you want to dive deeper, I'll cover how Ether acts as the fuel powering the Ethereum blockchain and its network.
Key Takeaways
Here's what you need to know right away: Ether is the native token that makes operations on the Ethereum network possible. Think of it metaphorically as the 'fuel' of the network, even though it's the cryptocurrency itself. And in terms of size, Ether is the world's second-largest virtual currency by market cap, just behind Bitcoin (BTC).
Understanding Ether (ETH)
The Ethereum blockchain is a distributed ledger built as a platform for creating decentralized applications. It aims to cut out third parties from global financial systems and put monetary control back in the hands of people, not governments or businesses.
This platform runs on a distributed, worldwide virtual computer made up of nodes—these are remote hosts—along with a consensus layer, an execution layer, an application layer, and participants who provide the hardware to host the virtual machine.
Keeping a host running and participating in the network doesn't cost much operationally, but volunteer validators have to stake their own valuable Ether to host nodes. In return, they get a shot at validating transactions and earning rewards in Ether (ETH).
Important Aspects of Ether
Ether isn't just for the network—it has real market value and you can exchange it for fiat currency on crypto exchanges. So, it's a native cryptocurrency, an investment asset, and a way to exchange value.
Developers and the community often call Ether the 'gas' that powers the network. That's because you exchange Ether for the work of verifying transactions and securing the blockchain, similar to buying gas for a car.
How Is Ether Different From Bitcoin?
Ether and Bitcoin are both cryptocurrencies, but they differ in several ways. I'll focus here on the token differences, not the blockchains themselves.
Denominations
Bitcoin breaks down into smaller units called satoshis—one Bitcoin equals 100 million satoshis, or 0.00000001 satoshi per Bitcoin. You might see things like mBTC, which is 0.001 Bitcoin or 100,000 satoshis.
Ether has its own set of denominations, some even smaller than satoshis. One Ether equals 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, or 0.000000000001 Tether.
Blockchain Internal Uses
Both Bitcoin and Ether are used on their blockchains to pay and reward participants for their work. But Ether goes further—it's used as collateral for validators.
If you want to become a validator and get paid for blockchain work, you stake Ether, locking it up so it can't be spent. Act unethically, and you lose that staked Ether.
Note that investors might soon access eight different spot Ether ETFs, following the SEC's approval in May 2024 for listing and trading these shares.
Rewards
On Ethereum, participants with enough staked Ether are randomly selected as validators and rewarded with Ether. Bitcoin rewards come from opening new blocks on its blockchain.
Ethereum validators get newly minted Ether plus tips from users, with new Ether issued at about 1,700 ETH per day per 14 million ETH staked.
Circulating Tokens
Bitcoin caps at 21 million coins, with the last one expected in 2140, and rewards halve every 210,000 blocks—about every four years.
Ether has a total supply limit of 120 million. When you pay fees in Ether for transactions, those fees get 'burned'—sent to an inaccessible address. The network mints new Ether to pay validators, balancing out at around 1,700 new Ether per day.
How High Are Ethereum Gas Fees?
As of May 27, 2024, the average gas fee was 13 gwei, which comes to about $0.99—though it can vary.
What Is the Gas Fee in Ethereum?
Gas fees are what you pay for transactions on Ethereum, like transferring Ether to buy something or creating smart contracts.
Who Earns Ethereum Gas Fees?
These fees have two parts: a block base fee and a tip. The base fee gets burned after the transaction, and the tip goes to the randomly chosen validator.
The Bottom Line
At its core, Ether is an on-chain payment method for the Ethereum blockchain and its applications. Outside of that, it's a cryptocurrency that works as a unit of account, medium of exchange, and store of value.
Remember, the comments, opinions, and analyses here are for informational purposes only. Check our warranty and liability disclaimer for more details.
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