DEFINITION of Ether (Cryptocurrency)

Ether is the integral element of the Ethereum blockchain network that acts as the network's fuel, keeping it agile and functional. While many believe that ether is the native digital currency of Ethereum, it acts as a medium of incentive or form of payment for the network participants to execute their requested operations on the network.

BREAKING DOWN Ether (Cryptocurrency)

The Ethereum network supports building and running digital, decentralized applications (dApps) for business and personal use. A developer who builds Ethereum apps may need to pay charges to host and execute the apps on the Ethereum network, and a user who uses such apps may need to pay for using the app. Ether acts as a medium to allow such payments. A developer who builds an app that uses minimal network resources will pay fewer ethers compared to the one who builds high-resource apps.

Ether is the “Fuel” of Ethereum

Essentially, this methodology of ether mimics the working of a fuel, rather than a currency. An inefficient engine will require more fuel, while an efficient engine (app) will consume less fuel (ether). The use of ether on the Ethereum network or in a decentralized app depends upon the amount of computational power and time required by a particular process, request, or transaction. The more computation power and time is needed by an app, the higher the ether fee that is charged for the action to be completed. This mechanism is completely different from the working of a standard cryptocurrency.

Ether makes such transactions and usage of apps and smart contracts possible on the Ethereum network, making it easier for network participants to build, host, execute, and use apps, and also pay and get rewarded in the Ethereum ecosystem. (For more, see What Is Ether? Is It the Same as Ethereum?)

Ether has a limited supply capped at 18 million ethers per year. As agreed during the 2014 presale, 60 million ethers were created and allocated to the contributors of the presale, and another 12 million were created for the development fund involving early contributors and developers and the Ethereum Foundation. At present, 5 ethers are created every block (roughly 15 seconds) and allocated to the block miner. Around 2-3 ethers are occasionally sent to another miner if they were also able to find a solution but the ensuing block wasn't included. Such rewards are often referred to as uncle block rewards. (See also, Joe Lubin answers: "Is Ether a Security?" - Video.)

Ether can be mined by creating a new block and adding it to the blockchain. On an average, a new block is added to the blockchain every 15 seconds and the miner who generated the new block is rewarded with 3 ethers. Ether supports CPU and GPU based mining. (See also, GPUs and Cryptocurrency Mining.)