Ethereum developers must pay Ether to build applications and smart products on the Ethereum blockchain, and users must pay Ether to run the applications. These fees are called “gas” and vary depending on how much computing power is needed for a given operation. Outside of the Ethereum network, a growing number of merchants also accept Ether as a method of payment for goods and services. Many speculators see Ether as a long-term investment opportunity and a bet on the expansion of the cryptocurrency economy.
Like other cryptocurrencies, Ether is digital money that is secured by cryptography and stored in a digital wallet. The Ethereum network is decentralized, meaning there is no third-party bank or institution involved in securing Ether holdings or verifying transactions. Anyone around the world with an internet connection can buy, hold and use Ether. Ether is the second-most-valuable cryptocurrency in the world behind Bitcoin (BTC), with a market capitalization of more than $300 billion as of early February 2022. The price of a single Ether is roughly $2,600 at the time of publication, but Ether can be divided up to 18 decimal places, making it easy to buy and use small denominations at a time.
Ether transactions are recorded on a public ledger, the Ethereum blockchain. The blockchain is publicly accessible, fully transparent and extremely secure. Transactions are verified and added to the Ethereum blockchain via mining, which involves solving extremely complex mathematical functions. In exchange for their work, Ether miners are granted a “block reward” in the form of a small number of Ether tokens.
In addition to transferring Ether from one account to another, users can trade Ether for Bitcoin and other cryptocurrencies and earn interest on ETH via staking.
Ether mining is the process by which Ether transactions are verified via a proof-of-work, or PoW, model and blocks are added to the Ethereum blockchain. Ether miners use high-powered computers to solve complex mathematical functions called hashes. In return for their work, Ether miners receive block rewards of 2 ETH per block mined plus any associated transaction fees.
The Ethereum network is transitioning to a proof-of-stake, or PoS, model starting in 2022, partly over concerns about the massive amount of energy that PoW mining consumes. Under the new system, individuals or pools of people with at least 32 Ether – valued at about $84,000 at the time of publishing – are eligible to become validators and verify Ether transactions.
Ether trades under the ticker ETH, and investors can buy it on popular cryptocurrency exchanges, such as Coinbase, Gemini and eToro. Many online brokers allow users to purchase Ether directly, including Robinhood, Interactive Brokers and TradeStation. Investors can also buy Ether through digital payment apps PayPal and Venmo, or they can buy it through physical Ether ATMs. Finally, investors can buy public exchange-traded funds and trusts that hold Ether futures contracts, including the popular Grayscale Ethereum Trust (ETHE). No matter how investors choose to buy their Ether, they must store it in a digital wallet.
Cryptocurrency wallets are like digital versions of physical wallets. Instead of dollar bills, digital wallets store the private keys needed to send or receive cryptocurrency payments. Anyone with access to an Ether wallet’s private keys controls all the Ether stored in that wallet.
Cryptocurrency wallets can be either physical hardware or digital software. Hardware wallets are typically like small USB drives, while software wallets can be applications on a smartphone. “Hot” wallets are connected to the internet while “cold” wallets are not. Popular Ether wallets include MetaMask, Ledger Nano X and Ledger Nano S.
Tokenomics is the study of the supply and demand economics of a cryptocurrency. Unlike Bitcoin, which is capped at a maximum supply of 21 million coins, Ether has no maximum supply. Ether is currently issued and distributed as part of the mining process, but it is also “burned,” or removed from circulation as part of Ethereum’s fee model following the EIP-1159 upgrade to the blockchain implemented in August 2021.
Each Ethereum transaction includes a small, variable fee based on demand for block space. Once paid, that fee is burned, reducing the total Ether supply. Ethereum is currently issuing new Ether at a rate of 4% per year, increasing its total number of tokens by about 1.02% annually on a net basis. Ethereum is currently planning to reduce its annual Ether issuance to between 0.5% and 1% of the total supply as part of its Ethereum 2.0 upgrade, which could transition the cryptocurrency from a net inflationary currency to a net deflationary currency.
Bitcoin is the clear cryptocurrency market leader, but Ether is second. Bitcoin’s first-mover advantage, simplicity and utility as a digital currency make it the most popular cryptocurrency investment. But Ethereum’s support of smart contracts, non-fungible tokens, or NFTs, and other decentralized applications, or dApps, makes the Ethereum blockchain much more functional for developers than Bitcoin. The functionality and utility of the Ethereum blockchain is one reason the price of Ether gained more than 2,300% from February 2019 to February 2022 compared to only about a 1,000% gain for Bitcoin in that period. These advantages may continue to make Ether a better long-term investment than Bitcoin.
Ether has a large, well-respected development team supporting the Ethereum ecosystem. The crypto is also extremely decentralized, with more than 109,000 addresses holding at least 32 Ether as of November 2021. The price of Ether is supported by the functionality of the Ethereum network, including support for dApps and NFTs, giving investors a reason to buy Ether other than its utility as a traditional currency. The Ethereum project is supported by several Fortune 500 businesses, including Intel Corp. (INTC), JPMorgan Chase & Co. (JPM) and Microsoft Corp. (MSFT). Finally, Ether has outperformed Bitcoin in recent years and could continue to be a better long-term investment.
Ether currently has issues with scaling and network congestion, but both problems will be addressed with Ethereum 2.0 network updates. Those updates will transition Ether from a PoW to a PoS model, which will reduce the cryptocurrency’s energy usage but may also reduce its overall security. Ethereum network congestion has triggered spikes in transaction fees in the past, making the cryptocurrency more costly to use for transactions than other cryptocurrencies. Finally, competing cryptocurrencies like Cardano (ADA), Binance Coin (BNB), Ethereum Classic (ETC) and others have been built to improve upon the Ethereum network, and each offers its own potential advantages over Ether.
The initial Ethereum blockchain white paper was published by Russian-Canadian programmer and writer Vitalik Buterin back in November 2013. Following the white paper publication, Ethereum co-founders Gavin Wood, Charles Hoskinson, Amir Chetrit, Anthony Di Iorio, Jeffrey Wilcke, Joseph Lubin and Mihai Alisie joined Buterin to develop the project.
Buterin presented his concept for Ethereum at the Bitcoin conference in Miami in early 2014. Later that year, the project raised capital via an initial coin offering, or ICO, which gave investors their first chance to purchase Ether. From July 22 to Sept. 2, 2014, investors purchased more than $18 million worth of Ether and paid for it in Bitcoin. ICO investors were finally able to use their Ether for the first time when the Ethereum blockchain went live on July 30, 2015.
FAQs
The Ethereum network is a decentralized blockchain platform that securely executes and verifies smart contracts. Ether is the native cryptocurrency used on the Ethereum network. Ether is often colloquially referred to as Ethereum, although the two are distinct.
Yes. While Ethereum network fees have dropped significantly from peak levels, Ether transactions still have higher fees than many other cryptocurrencies.
Ether is the digital Ethereum network token created by the Ethereum developers. ERC20 tokens are currencies created by third-party developers that are built on the Ethereum network.
