Ether (ETH) is the backbone of the Ethereum blockchain and functions to fuel and secure the network. While there are many cryptocurrencies and numerous tokens on the Ethereum network, Ether is the primary token on the Ethereum blockchain and is also regarded as the currency for Ethereum apps. ETH is the world’s second-largest virtual currency by market capitalization as of 2022, just behind Bitcoin.
Understanding Ether (ETH)
Metaphorically speaking, Ether is the “fuel” of the Ethereum network as it facilitates operations on the Ethereum blockchain, including tracking and facilitating all transactions in the Ethereum network. As the Ethereum financial system grows, ETH has additional use cases apart from facilitating payments on the Ethereum blockchain. If you’re new to the Ethereum blockchain, here’s an in-depth look at Ether.
Ether is the lifeblood of the Ethereum blockchain and is regarded as the native cryptocurrency of the Ethereum blockchain network. The token is used to pay the transactional fee and computational services on the Ethereum blockchain. The Ethereum blockchain integrates smart contracts which support the development and running of decentralized applications (Dapps) on the Ethereum blockchain. ETH is used to pay for the computational resources used to develop and run these Dapps.
Ethereum application developers are required to pay some fees in Ether to host and execute applications on the Ethereum network. Besides, users may be required to pay some ETH for using the applications. Ether acts as a medium for facilitating such payments on the Ethereum blockchain. The fee to be paid depends on the network resources required to build, deploy and run the applications on the Ethereum blockchain. Data-hungry applications require more computational time and power to process transactions hence a higher ETH fee to run the applications.
Unique Features of Ether
Think of Ether as scarce digital money used to facilitate crypto payments, similar to Bitcoin, but with more capabilities. Below are some of the unique features of ETH.
- Fully decentralized– Ether is fully decentralized, meaning users have total control over their funds. An Ethereum wallet acts as proof of ownership, meaning that no third parties, such as banks and companies, can control the funds or even change its term of use.
- Peer–to-peer payments– Ether facilitates P2P payments, meaning that you can transact ETH securely and without the intervention of any intermediary such as banks.
- Secured by cryptography– ETH achieves a high level of security owing to its intense proven cryptography security. As such, users’ wallets, ETH, and transactions are fully secure against cyber threats.
- Open to anyone– Ether is open to anyone across the globe since you only need a wallet and an internet connection to start using ETH. Even the unbanked population can still make and accept payments in ETH via a supported crypto wallet.
- Available in flexible amounts– ETH is divisible up to 18 decimal places, meaning you can obtain a flexible amount as you wish. You can buy as little as 0.000000000000000001 ETH at a time.
How is Ether Generated?
Ether is currently generated in line with the Ethereum Proof-of-Work (PoW) protocol, where miners gain ETH rewards for producing and adding blocks to the Ethereum blockchain. Block producers, i.e., miners, essentially process and verify transactions on the network to earn rewards in ETH.
Ether is represented as a state of unsigned integer associated with each user’s account. A user’s ETH account balance is represented as Wei (1018 Wei = 1 ether). When a block is produced, new ETH is generated by adding a protocol-specified amount, which is currently two × 1018 Wei (equal to 2 ETH). The balance is then added to an ETH account specified by the block reward.
In addition to the block reward, miners on the Ethereum blockchain are also offered a percentage of the transaction fee (gas) paid to use the network and its computational resources. Incentivizing miners enables them to keep processing and verifying new transactions, ensuring that the network keeps growing.
However, the upcoming Ethereum Merge, where Ethereum is set to shift from proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism, will change the way Ether is generated as mining will no longer be a means of producing valid blocks. PoS validators will assume the role of a miner and will be responsible for processing the validity of all transactions on the Ethereum blockchain.
Ether Use Cases
Ether underpins the peer-to-peer Ethereum financial system, which is accessible to everyone. Aside from facilitating payments on the Ethereum network, Ether has other use cases on the network. Besides, since it’s programmable, software engineers and developers can customize ETH to achieve countless use cases. Some of the use cases of Ether include:
- Payment for goods and services– Ether, like Bitcoin, can be used as a digital currency to pay for goods and services in the real world without using a third party for processing and verifications.
- Facilitate payments of the Ethereum blockchain-Ether facilitates payments of transaction fees, commonly referred to as gas, and the computational resources required for developing and deploying smart contracts and Ethereum apps such as Dapps.
- Powering decentralized applications: Ether is required for powering decentralized apps (dapps) built on Ethereum. The token facilitates staking, yield farming, and governance through voting.
- Swapping- You can swap (trade) ETH with tokens such as Bitcoin and stablecoins on crypto exchanges.
- Stream- ETH can be used to automatically pay someone or receive funds in real time without lifting a finger, thanks to smart contracts.
- Investments- You can earn interest by staking Ether and other Ethereum-based tokens on crypto staking platforms.
Getting to Buy Ether
Ether can be bought on crypto exchanges, some of which have in-built wallets. However, it’s advisable to store ETH offline and not in crypto exchanges, owing to cyber-attacks risks. Buying ETH is relatively straightforward, even for novices in the crypto space. The steps for buying ETH include:
- Create an account on a crypto exchange and fund it– The first step to buying ETH is to create an account with a reputable crypto exchange. Some exchanges will require you to submit your personal information and proof of identity and then fund the account in fiat currency.
- Initiate an Ether transaction– The next step is to initiate an Ether transaction via the exchange’s web or mobile app. Always counter-check the transaction details as well as the transaction fees charged before confirming the transaction.
- Store your ETH Offline– Once the transaction is complete, the ETH is automatically deposited in the crypto wallet to which you offered the address.
Ether is the world’s 2nd-largest virtual currency by market capitalization and value. The token powers the Ethereum blockchain network and underpins its financial system by facilitating transaction fees and computational resource payments. In essence, ETH’s primary use case is to facilitate and monetize the operations of the Ethereum blockchain network.
In addition to facilitating transactions on the Ethereum blockchain, ETH has other use cases, including acting as a store of value and powering financial apps on the Ethereum blockchain. The versatility of ETH makes it possible to be molded to achieve a particular use case in the expansive Ethereum ecosystem.
What is Ethereum?
Ethereum is the first open-source smart contract platform built using blockchain technology. The main purpose of Ethereum is to offer a decentralized service for secure transactions between users. Ethereum allows developers to build new applications and programs that run exactly as programmed. If these apps use the Ethereum protocol, they can be automatically enforced into existence without any centralized authorizations needed. This means programmers can verify that the app functions properly through automated checking processes instead of human intervention.
What is Proof-of-Work?
The term “Proof-of-Work” refers to a process used for securing computing resources and transactions on a public network such as the Internet. This method uses computational effort as measured in “work units.” One unit of work is defined as the amount of processing needed to find a new block in the blockchain ledger. Using proof-of-work, miners compete against each other to be the first ones to solve complex mathematical puzzles. They receive transaction fees and newly minted coins by validating transactions by solving these complex puzzles. Miners use specialized hardware devices known as ASICs to carry out the calculations necessary to confirm transactions. Bitcoin and other cryptocurrencies use proof-of-work consensus algorithms instead of central validation to secure their networks.
How does cryptocurrency mining work?
The process behind crypto mining consists of solving complex mathematical equations using computer hardware. It’s basically like gambling, except you don’t win anything tangible. Since the difficulty level for these equations increases by 10x each year, it has become harder to mine cryptocurrencies over time. This means that fewer coins are available to be mined, which drives up their price.