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What Is Ether (ETH)?
Ether is the transactional token that facilitates operations on the Ethereum network. All of the programs and services linked with the Ethereum network require computing power, equipment, internet connections, and maintenance. Ether is the payment users give to network participants for executing their requested operations on the network.
Metaphorically speaking, it is more accurate to refer to ether as the "gas" that powers the network. Gas is the term the community uses to refer to the exchange of ether for the work done to verify transactions and secure the blockchain.
Learn more about ether and how it acts as the fuel that powers the Ethereum blockchain and network.
Key Takeaways
- Ether is the transactional token that facilitates operations on the Ethereum network.
- While ether is the cryptocurrency of the Ethereum network, metaphorically speaking, it is more accurate to refer to it as the "fuel" of the network.
- Ether is the world’s second-largest virtual currency by market capitalization; it is second only to Bitcoin (BTC) according to market value.
Understanding Ether (ETH)
The Ethereum blockchain is a distributed ledger designed as a platform that makes it easier for people to create applications that require information to be stored securely. 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, and volunteers who provide the equipment necessary for hosting the virtual machine.
The operational costs of maintaining a host and participating in the network and blockchain are minimal, but the volunteer validators must stake valuable ether of their own to host nodes. Validators receive a chance to validate transactions and earn a reward for their work, issued in ether (ETH).
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.
How Is Ether Different From Bitcoin?
Purpose
Most importantly, the overall aims of the networks are different. Bitcoin was created as a secure peer-to-peer decentralized payment system, an alternative to traditional currencies.
The Ethereum platform was created to facilitate contracts and applications, and ether is the medium through which these transactions are made possible. Ether was never intended to be an alternative currency or to replace other mediums of exchange, but it has become one. Its original purpose was to facilitate and monetize the operations of the Ethereum platform.
Unlike Bitcoin, the total number of ether tokens does not have an absolute cap—it changes and grows constantly according to demand. As a result, the Ethereum blockchain is significantly larger than the Bitcoin blockchain, and it is expected to continue to outpace Bitcoin in the future.
Ether is given to network participants randomly chosen as validators through proof-of-stake consensus; bitcoin is given as a reward for being the one to open a new block on the blockchain through proof-of-work consensus.
Blockchain
Another key difference between the two is that, while the Bitcoin blockchain is simply a ledger of accounts, contributors to the Ethereum blockchain can build more code into the transactions, creating “smart contracts" and other applications. So transactions on the Ethereum network may contain executable code, while the data connected to Bitcoin network transactions are generally only used for recordkeeping.
The amount of time it takes to build a new block also varies between the two virtual currencies. For example, a new block in the Ethereum blockchain can be confirmed in seconds, whereas it takes an average of 10 minutes for the Bitcoin.
In technical terms, these two technologies don't compete; from a functional perspective, they do. This is because cryptocurrencies and blockchains have become more competitive in their use cases, transaction speeds, capabilities, and market capitalization. The two older blockchains must continually evolve to maintain popularity or risk being left behind by newer ideas and techniques.
Is Gas and Ether the Same Thing?
Ether is a cryptocurrency. Gas is a term used by the Ethereum developers and community to refer to the power—measured in ether—needed to pay for validation work and securing the blockchain. So in a sense, they are the same thing in that transactions have gas fees that are paid in ether (ETH).
Why Is Ether Gas Price So High?
Ether gas prices are high because of network traffic. Because someone can pay for their transaction to be prioritized in the queue, prices rise with the demand for transaction validation. Conversely, when network activity is low, gas fees drop.
What Does Ether Actually Do?
Ether has two purposes on the Ethereum network. First, it is used to pay transaction fees, and second, it is staked—held as collateral—for the privilege of being a network validator.
The Bottom Line
At its base level, ether functions as an on-chain payment method for the Ethereum blockchain and technologies developed using it. Externally, ether is generally accepted as a unit of account, a medium of exchange, and a store of value—meeting the definition of money according to the Internal Revenue Service.
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