What Is Ether (ETH)? Definition, How It Works, vs. Bitcoin

What Is Ether (ETH)? Ether is a cryptocurrency used in Ethereum's global virtual machine. It has several uses: It is used to pay network participants for their contributions to the blockchain. Investors use it as a store of value, and traders use it to take advantage of price movements. Consumers can use it to pay for goods and services at businesses that accept it. Learn more about ether and how it acts as the fuel that powers the Ethereum blockchain and network. KEY TAKEAWAYS Ether is the native 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 cap. 1 Understanding Ether (ETH) The Ethereum blockchain is a distributed ledger designed as a platform that makes it easier for people to create decentralized applications. 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, an application layer, and participants 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. The developers and community metaphorically refer to ether as the "gas" that powers the network. It is called gas because ether is exchanged for the work done to verify transactions and secure the blockchain, much like money spent to buy the gas that powers a car. How Is Ether Different From Bitcoin? While ether and bitcoin are cryptocurrencies, they have many distinguishing differences. This discussion is strictly about the token differences, not the blockchains. Denominations A bitcoin can be broken down into smaller denominations called satoshis. One bitcoin is equal to 0.00000001 satoshi, so there are 100 million satoshi per bitcoin. You might see denominations of bitcoin referred to as mBTC, or milli Btc. In this case, 1 mBTC is 0.001 bitcoins, or 100,000 satoshi. Ether consists of several denominations, some of which are much smaller (incrementally) than a satoshi. One ether is equal to: 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 Bitcoin and ether both have uses on the blockchain. They are both used to pay and reward participants for work done. However, ether has an additional use—it is used as validator collateral. When a user wants to become a validator and receive payments for blockchain work, they must lock ether in a process called "staking." When ether is staked, it cannot be spent. If a user acts unethically, their staked ether is forfeited. Rewards On the Ethereum blockchain, participants with enough ether staked are randomly chosen as validators and receive ether as a reward. Bitcoin is given as a reward for opening a new block on the blockchain. Ethereum validators are awarded newly minted ether and tips from users. New ether tokens are awarded at a rate of about 1,700 ETH per day per 14 million ETH staked. 2 Circulating Tokens Bitcoin will only ever have 21 million coins circulating, the last of which is expected to be rewarded in 2140. The blockchain is also programmed to split rewards in half every 210,00 blocks (roughly four years). Ether is limited to a total supply of 120 million. When transactions are paid for in ether, the fees are "burned"—sent to an address with no keys. The network mints new ether and pays the validators, maintaining a balance of about 1,700 new ether issued per day. 2 How High are Ethereum Gas Fees? On April 10, 2024, the average gas fee (which varies) was 27 gwei, or about $1.87. 3 What Is the Gas Fee in Ethereum? Gas fees are fees paid for transactions, such as transferring ether to someone to pay for an item or creating smart contracts. Who Earns Ethereum Gas Fees? Ethereum gas fees consist of two portions: a block base fee and a tip. The block base fee is burned after the transaction, and the tip is received by the randomly chosen validator. 4 The Bottom Line At its base level, ether functions as an on-chain payment method for the Ethereum blockchain and applications developed using it. Externally, ether is a cryptocurrency, generally accepted as a unit of account, a medium of exchange, and a store of value. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. Compete Risk Free with $100,000 in Virtual Cash Put your trading skills to the test with our FREE Stock Simulator. 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