What is Ether (ETH)? Understanding the Lifeblood of Ethereum
Ether, commonly referred to as ETH, serves as the cryptocurrency utilized within Ethereum’s global virtual machine. It’s not just a digital currency but a versatile asset; ETH is used to compensate network participants, serve as a store of value, and facilitate trades. Furthermore, businesses accepting it allow consumers to purchase goods and services using ETH.
Key Takeaways
- Ether is the native token key to Ethereum network operations.
- Unlike typical cryptocurrencies, Ether acts as the “fuel” of the Ethereum network, metaphorically known as ‘gas’ for its essential service.
- By market capitalization, Ether is second only to Bitcoin (BTC) globally.
Understanding Ether (ETH)
The Ethereum blockchain is a cutting-edge distributed ledger designed to simplify the creation of decentralized applications (DApps). Conceived to decentralize global financial systems, Ethereum removes intermediaries from transactions, putting financial control in the hands of users instead of centralized authorities like governments or businesses.
Ethereum is essentially a distributed, worldwide virtual computer, running on remote hosts called nodes. These nodes operate a consensus layer, an execution layer, and an application layer, all coordinated by participants who provide the necessary computing infrastructure.
Operating costs for hosting a node are minimal, yet validators must stake their own valuable ether as collateral. In return, validators get the opportunity to confirm transactions and earn Ether (ETH) as a reward. ETH also holds market value and can be exchanged for fiat currencies on various crypto exchanges.
Ether is often referred to as ‘gas’ by developers and community members since it is exchanged for executing transactions and securing the blockchain—a direct analogy to money spent on gas for a car.
How Is Ether Different From Bitcoin?
Though both Ether and Bitcoin are cryptocurrencies, their functionalities and structures reveal numerous distinct differences.
Denominations
Bitcoin can be broken down into smaller units known as satoshis. One Bitcoin equals 100,000,000 satoshis, and you might encounter the term milliBTC or mBTC, which equals 0.001 Bitcoins or 100,000 satoshi.
In comparison, one Ether can be divided into these denominations:
- 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
Blockchain Internal Uses
Both Bitcoin and Ether pay and reward network participants for their contributions. However, Ether brings an added layer: it serves as validator collateral. Prospective validators must stake Ether to join the validation process and, if they act unethically, lose their staked Ether.
Rewards
On the Ethereum network, validators who have sufficient ether staked are randomly chosen for transaction validation and are rewarded in ether. Conversely, Bitcoin is mainly rewarded to miners who open new blocks on the blockchain. Ethereum validators earn fresh Ether and tips—about 1,700 ETH are issued per day per 14 million ETH staked.
Circulating Tokens
Bitcoin will cap at 21 million coins, with the last rewards expected by 2140. Bitcoin’s system halves rewards every four years.
On the other hand, Ether maintains a maximum supply of 120 million. Ethereum burns transaction fees, keeping a balance by continually minting and rewarding new Ether—again, about 1,700 freshly minted Ether daily.
How High are Ethereum Gas Fees?
On April 10, 2024, the average gas fee was around 27 gwei or approximately $1.87.
What Is the Gas Fee in Ethereum?
Gas fees encompass the costs associated with executing transactions like transferring Ether between addresses or creating smart contracts.
Who Earns Ethereum Gas Fees?
Ethereum gas fees consist of a block base fee, which is burned, and a tip allocated to a randomly selected validator.
The Bottom Line
At its core, Ether, along with the associated gas fees, serves as a vital element for transactions and operation in the Ethereum ecosystem. Beyond its primary utility within the network, Ether is widely recognized as a significant cryptocurrency utilized as a unit of account, medium of exchange, and store of value.
Related Terms: Bitcoin, Smart Contracts, Decentralized Applications (DApps), Staking, Gwei, Gas Fees
References
- CoinMarketCap. “Today’s Cryptocurrency Prices by Market Cap”.
- Ethereum. “How the Merge Impacted ETH Supply”.
- Etherscan. “Gas Tracker”.
- Ethereum. “Gas and Fees”.
