Ether (ETH) is the main token of the Ethereum blockchain and the world’s second-largest cryptocurrency by market capitalization. Like Bitcoin, Ether can be used as a payment system to send payments directly to another person without a central authority such as a bank.
Unlike Bitcoin, however, Ether coins can be used to create applications in the Ethereum system — taking it far beyond simple currency payments. Despite major security flaws, Ether continues to grow in popularity.
The Ethereum blockchain is a completely decentralized platform that enables developers to build and deploy decentralized applications. With Ethereum’s blockchain technology, developers are able to build platforms that can change the world. These decentralized networks can help people in building social media, lending money, and countless other applications.
Ethereum’s long-term vision extends far beyond the finance sector. Ethereum addresses social media, peer-to-peer lending, and storage — all industries that require high-security standards.
Table of Contents
Ether Coins – The Beginning
Ethereum is an open-source, public, blockchain-based distributed computing platform featuring smart contract (scripting) functionality. It provides a decentralized Turing-complete virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes.
Ethereum was created by a 19-year-old Canadian coder, Vitalik Buterin, who is best known for his work on Bitcoin Magazine. Buterin described the idea for Ethereum in 2013 in a paper entitled ‘A Next-Generation Smart Contract and Decentralized Application Platform’.
In 2014, he launched a crowdfunding campaign to support the research and development of the Ethereum platform which was later launched in 2015 by Buterin and Joseph Lubin, founder of ConsenSys. Ethereum’s founders were among the first to consider the full potential of blockchain technology, beyond just cryptocurrency trading.
In 2016, a hard fork (split) in the Ethereum blockchain caused a division in the community. The DAO project was funded by a token sale and, after being compromised by a hacker, was recovered by reverting to the previous version of the blockchain. Some network participants chose to maintain that old blockchain and split it into two sister chains. This resulted in the creation of the Ethereum Classic (ETC).
Ethereum vs. Bitcoin
Both Bitcoin and Ether are open-source, decentralized blockchain technologies that use different mining algorithms. What sets them apart is their market capitalization, transaction method, and monetary supply. While Bitcoin is primarily a store of value with a capped amount of coins to be released in the future (21 million), Ether enables developers to build and execute smart contracts on the Ethereum network.
The Ethereum network is the largest blockchain in existence, and the fastest decentralized application platform in the world, facilitating smart contract-based transactions. The cryptocurrency is powered by a different underlying technology than Bitcoin’s: it is made possible by the same distributed ledger technology that makes blockchains so secure and resilient. However, while Bitcoin no longer allows code to be written into transactions, Ethereum represents programmable money.
Currently, Bitcoin and Ethereum compute their distributed ledger-which is called a blockchain using the same algorithm. However, this algorithm can be very energy-intensive and expensive for these networks. In 2022, Ethereum will move to a different algorithm known as Proof of Stake (PoS). This new protocol would allow Ethereum to flex its focus away from mining and more towards its initial purpose – the creation of smart contracts.
The primary purpose of bitcoin is to establish itself as an alternative monetary system. The fact that it’s also used for payments and other things is nice, but it’s not at all necessary for the cryptocurrency to function. Ethereum, on the other hand, has a more holistic purpose. It’s meant to be a platform for decentralized applications (known as dApps) to be built upon. This gives ether a third dimension beyond its use as a currency.
The Difference Between Ethereum and Ether
Ethereum is a distributed public blockchain network that focuses on running the programming code of applications rather than the applications themselves designed around the concept of smart contracts. It provides a digital platform for people to enter into agreements and set up smart contacts within a decentralized system. Ethereum’s goal is to become a decentralized world supercomputer where users can make use of their own resources, whether they are devices or computational power, to run programs.
Ether is a digital currency in the e-commerce world. It is used to make transactions on the Ethereum network. Ether cryptocurrency is used as both an instrument to trade with and as a basis for investment. In addition to being used as a form of currency, Ethereum offers multiple other functions. Business owners can store ETH or exchange it for products, services, and digital assets.
An Ethereum transaction refers to an action initiated by an externally-owned account, such as a cryptocurrency wallet.
Ethereum blockchain transactions are the building blocks of technology and smart contracts. When a user executes a transaction, they’re confirming that they agree to the “rules of the network.” This means that they want to send or receive assets, or store data on the chain. In return for executing this request, the user pays a gas fee — Ether tokens that incentivize miners to confirm the transaction.
A submitted transaction includes the following information:
- Recipient – the receiving address (if an externally-owned account, the transaction will transfer value. If a contract account, the transaction will execute the contract code).
- Signature – the identifier of the sender. This is generated when the sender’s private key signs the transaction and confirms the sender has authorized this transaction.
- Value – the amount of ETH to transfer from sender to recipient (in WEI, a denomination of ETH).
- Data – an optional field to include arbitrary data.
- GasLimit – the maximum amount of gas units that can be consumed by the transaction. Units of gas represent computational steps.
- MaxPriorityFeePerGas – the maximum amount of gas to be included as a tip to the miner.
- MaxFeePerGas – the maximum amount of gas willing to be paid for the transaction.
Ethereum Network Design
Ethereum provides a decentralized platform for applications to run on. When using Ethereum, each node has its own blockchain — each block has a chain identifier that must precede the next block in order for it to be considered valid. The value balance of ETH and storage values are stored separately from the blockchain in a Merkle Tree, which is attached to the blockchain on each node.
The Ethereum network is built on a blockchain where 2.4 million computers store the record of Ethereum transactions. Anyone can use Ethereum nodes to verify the transactions provided they do not deviate from the rules of the network.
To ensure the security of the network, miners are paid to work on the Ethereum blockchain. As a reward for their services, they receive Ether, which is the digital token used to pay for transactions and smart contract features on the Ethereum network. People can also become full, or unbiased, nodes in the Ethereum blockchain. These nodes act as a check on miners by confirming that transactions do not contradict one another.
In the Ethereum ecosystem, accounts are divided into two types: externally-owned accounts and contract-based smart contracts. The former are easier to create and use but have some restrictions. The latter is more complex, but they’re Turing-complete, can hold larger amounts of value, and can be interacted with by other contracts.
Everything in Ethereum revolves around an account, which holds a certain amount of ETH, can call or be called by contracts, and can be created by a contract.
Externally Owned Accounts
Externally owned accounts in Ethereum are the identifiers with which a user can interact with the system. These accounts are typically created by a central authority that checks for clashes in users’ names — an Ethereum address is an identifier that is typically generated in a decentralized way.
An externally owned account is a mechanism for interacting with the Ethereum Virtual Machine. An account stores one or more addresses, along with an optional balance. It can receive Ether by creating transactions and executing contracts, and it can send Ether to other accounts. At its most basic level, an externally owned account can be thought of as a special type of wallet that is controlled by no one but which anyone with the appropriate private key can use to move Ether.
Contract accounts are created when another account sends a transaction with the contract code. For example, when a user sends ether to an ICO smart contract address, that address would be populated as a contract account. Contract accounts unlock functionality that can be used by sending transactions to them. Contract accounts are created by sending transactions from externally owned accounts.
When you send ETH to an ICO’s smart contract address, their address is then populated as a new contract account.
Addresses are generated using the account address and a nonce. The nonce is incremented each time a transaction is made from an account — this prevents sending tokens to the same address more than once. The resulting hash of these two values is then run through keccak256 and the last 40 hexadecimal characters of that output string from a new Ethereum address.
Just as a contract between two entities is a binding agreement, smart contracts are self-enforcing and are the building blocks of blockchain technology. The essential part of blockchain tech is that while it is unchangeable, it is inherently flexible — these contracts can be modified by the creator at any time. Only when both parties agree to this modification will it happen. Smart Contracts work off of IF/THEN statements.
A contract will require conversion from human-readable code into something computers can read, before it can be deployed by the EVM onto the Ethereum network. The EVM is a virtual machine that runs smart contracts on the Ethereum blockchain.
An Ethereum address is generated from a public-private key pair. Public and private keys are both 256-bit numbers. Think of the public key as your Ethereum address and your private key as the password to access it and spend your Ether. To give you a perspective of how huge this number is, it’s estimated that there are more atoms in the observable universe than the possible number of private keys.
Gas is a unit of measure for the amount of computational effort needed to perform operations on blockchains, which is paid by those who initiate the transaction. Blockchain transaction fees are the gas price or cost of operation in an Ethereum-based service. They pay for calculating transactions on the blockchain — including the sending, verifying, and storing. Each transaction has a gas cost that should be roughly proportional to the amount of processing power necessary to complete it.
Ethereum Virtual Machine (EVM) is a virtual machine that is run by an Ethereum node in the Ethereum network. This machine executes the code of an Ethereum transaction. Just like how a computer works, EVM stores information in its memory and performs various operations and calculations.
Every single node on the network runs a virtual machine — each having its own memory and balance. Whenever a transaction is executed, it has its own corresponding code added to the stack.
Ethereum governance is a decentralized approach to protocol changes that ensures all decisions are made fairly. Unlike most other cryptocurrencies, which have central governing bodies, Ethereum is intended to be governed by the users of the system. Any changes made require that there be broad consensus across the community before being applied, as other currencies’ governance structures could lead to a fracturing of the ecosystem and even cause them to fail at some point in the future.
On-chain vs Off-chain Governance
Off-chain governance on Ethereum is a time-intensive process that requires input from a wide variety of stakeholders and can take months to complete. With on-chain governance, you can make protocol changes with a simple vote, and those changes will be implemented on the blockchain automatically.
Rather than forcing stakeholders to wait for days or weeks to implement protocol changes, you can make decisions and implement them directly.
The Ethereum community is built up of many different actors ranging from the software developers who write code, to the miners who do the work, to the companies making products with the technology. Everyone has a piece in making sure that Ethereum succeeds.
- Ether holders – hold an arbitrary amount of ETH.
- Application Users – interact with applications on the Ethereum blockchain.
- Application/Tooling Developers – write applications that are run on the Ethereum blockchain (e.g. DeFi, NFTs, etc.) or build tooling to interact with Ethereum (e.g. wallets, test suites, etc.).
- Node Operators – run nodes that propagate blocks and transactions, rejecting any invalid transaction or block that they come across.
- EIP Authors – propose changes to the Ethereum protocol, in the form of Ethereum Improvement Proposals (EIPs).
- Miners/Validators – run nodes that can add new blocks to the Ethereum blockchain.
- Protocol Developers (a.k.a. “Core Developers” ) – maintain the various Ethereum implementations.
The difficulty bomb is an Ethereum protocol feature that causes the difficulty of mining a block to increase exponentially over time after a certain block is reached. The intention of the difficulty bomb was to incentivize upgrades to the protocol, but it could be used by miners against network participants and developers. Miners could upset the entire network, intentionally triggering the difficulty bomb, which would lead to very slow transaction times and high confirmation rates due to high mining difficulty. It was initially placed in this place to ensure a complete upgrade of the work to “proof of stake”, upgrading that completely eliminated the miners from the design of the network.
The Ethereum protocol is a highly accessible and versatile framework that can be used for a variety of novel applications such as a distributed web browser, a gaming platform, an advertising network, an identity management system, and much more.
An ERC20 token is a standard used for creating and issuing contracts on the Ethereum blockchain. While most tokens are built to be fungible, ERC20 is not — each token has its own unique function, such as tracking ownership of an asset or representing a share of a company.
Non-Fungible Tokens (NFTs)
NFTs are based on the Ethereum blockchain. They let us tokenize things like art, collectibles, and real estate — with one caveat: they can only have one official owner at a time. This means that there is no way to modify the record of ownership or copy/paste a new NFT into existence, making it almost impossible for fraud to occur.
Decentralized Finance (DeFi)
With no centralized authority, decentralized finance allows for greater financial freedom. Using smart contracts, applications such as loans and stablecoins can be minted without the need to trust a bank or a lending institution. DeFi has taken off in the past year, with many hopeful companies coming forward to deliver on the idea of using Ethereum to build a completely trustless market.
What is The Ethereum Coin Used For?
Ether is a unit of account used to pay for any fees or services performed on the Ethereum platform. Ether can be sent to other users, and it’s also used by application developers when they need to create smart contracts that send Ether payments to other accounts (or other smart contracts.
Payments: When sending ether to another user, there is no third party involved. Since the blockchain is used, the payments are not controlled by a central authentication server and are processed almost immediately.
Powering Decentralized Applications: Ether is required in order to use decentralized apps (dApps) built on Ethereum, from staking ERC-2Ether is the fuel that powers Ethereum and its decentralized applications.
Without Ether, users would not be able to summon tokens, send transactions, or run smart contracts. Therefore, if you are interested in using Ethereum’s many benefits, such as 50x cost savings on transaction fees and instant payments with the ability to scale up without downtime, you need Ether to do so.
Ether is the fuel that powers Ethereum and its decentralized applications.0 tokens for yield farming to complete functions such as governance voting.
Transactions fees: Every Ethereum action – from payments to using dApps – requires a fee. Most of the time, these fees are tiny. Only 0.01% of all transactions were larger than $10. However, some transactions were much larger. For example, the fee paid for a $147,200 transaction was $1,792, or 1.4%.
Transaction fees are earned by the miners. Specifically, miners include transactions in the blocks they have mined, and for each transaction, they include a small transaction fee.
All of the transactions on the Ethereum network need to maintain a synchronized state and agree on the transaction history. We do this by packing transactions together into blocks, so dozens of transactions all happen at the same time.
Blocks are batches of transactions that have a digital fingerprint of the previous block’s fingerprint. This links blocks together, as each block would have to be changed before the next block could be changed — alterations between blocks would not match the digital fingerprint and everyone running the blockchain would notice.
The hash function is a mathematical operation that takes any amount of data and turns it into a string of numbers and letters of a fixed length.
Using Ether to Power DApps
Ether can be used as gas for smart contracts, which are small programs that are run on a decentralized network of machines. These solidity contracts have no downtime and have no single point of failure, meaning you can trust them. And if the contract is broken or goes offline, it can never be changed by anyone, nor erased.
The most common use case for Ethereum is to create a dApp (decentralized app). Dapps are built on the blockchain and allow for peer-to-peer payments, therefore eliminating any middlemen. Say you want to create a diary that’s hosted on the blockchain — with an Ethereum dApp, people can save notes from their diaries even if the app store disappears or the company goes bankrupt.
The blockchain and smart contracts give dApps the ability to endlessly improve — an exciting point of difference with centralized applications. This is only possible through the combination of both a store of value that allows for immutable and irreversible transactions, as well as a platform that allows for seamless development.
Dapps create opportunities for users to have their say in a wide variety of industries, from gaming to academic records to real estate.
How Much Is Ethereum Worth?
At the time of this article, the Ethereum price is $2,822.28, a change of -3.59% over the past 24 hours as of 11:50 a.m. The recent price action in Ethereum left the token’s market capitalization at $334,140,361,947.94 USD. So far this year, Ethereum has a change of -22.56%
In the cryptocurrency world, the ETH/USD pair is currently the most popular pair in the market.
The trend of Ethereum trading during a bear market continues to show more upward movement as the price continues to break higher against the USD.
Ethereum as an Investment
There are a number of reasons that you should invest in Ethereum and increase your cryptocurrency investment portfolio. Firstly, it is the first decentralized application platform that is based on the blockchain. This is a huge and unprecedented achievement, which is why Ethereum has seen massive growth since its launch in 2015.
Ethereum is also one of the fastest-growing cryptocurrencies to date. At the time of writing, the Ethereum network has a market value of over $30 billion.
From its humble beginnings as a small startup, Ethereum has grown into a technology that has the potential to be of the most important digital and decentralized platforms.
Ether (ETH) is one of the most popular Altcoins on the market, and it has grown considerably in value over the past few months. Experts say it could continue to grow by as much as 400% in 2022.
While many investors see Ethereum as just another cryptocurrency, many others see it as a technology that will disrupt how industries operate in years to come.
How Does Ethereum Make Money?
The Ethereum network levies a small fee on each transaction. Ethereum requires any party participating in a transaction to pay a fee. Fees are not particularly high, but they can add up to a significant amount. If you’re spending more than a few dollars per day in gas, then the total fees can even exceed the amount of money you’re making in processing fees. The most effective way to reduce your gas fees is to increase the gas price.
Verifying transactions on Ethereum is completed by miners, but it will use owners of significant stakes to validate transactions. Those who own a significant stake in the currency will have to place their currency on the line in order to be considered for validation — but if their currency is verified, they’ll earn rewards that are paid to them in Ethereum. Ethereum uses miners for transaction verification.
Ether and Gas
Gas is a measurement of the amount of work an action requires in order for it to be successfully completed on the Ethereum network. In this case, that means that a transaction has been successfully completed. For each transaction, users will have to pay a fee in ETH — and that fee is calculated based on how much work (or gas) the transaction takes.
For example, in the case of a simple ETH transfer, the gas required will be very small. But if you want to transfer more crypto, the requirement will be higher.
In those cases, users will have to pay more ETH — which is what makes the blockchain so resourceful.
The basic formula for Ethereum gas is $gasPrice * gas / gasLimit. GasLimit is the maximum amount of gas that can be used.
How Can I Buy Ethereum?
There is a common misconception about the Ethereum network — many people think that the price of ether is the same as the price of Ethereum. This is simply not true. Ethereum is a cryptocurrency, whereas the Ethereum network is where you purchase and store your ether tokens. Ethereum is one of the most popular and easily available cryptocurrencies, with many people deciding to invest in it.
If you plan to purchase ether tokens, then you will have to have a wallet for this purpose. Ethereum wallets are software programs that let you interact with your Ethereum account.
These applications can help you send transactions, manage your ETH and connect to DApps. You need an Ethereum wallet to make transactions and store your ETH.
It is important to note that not all wallets are the same. Some wallets are very secure, while others are not. Some wallets are designed specifically for the storage of cryptocurrency, while others are designed for storing other types of documents such as photos and so forth.
Types of Wallets
Physical hardware wallets that let you keep your crypto offline – are very secure.
Mobile applications that make your funds accessible from anywhere.
Web wallets that let you interact with your account via a web browser.
Desktop applications if you prefer to manage your funds via macOS, Windows, or Linux.
Ethereum 2.0, or “Serenity.” is the next step in the cryptocurrency revolution and a major upgrade to the platform. Ethereum has been using a proof-of-work (PoW) system, which is an algorithm that uses miners to complete transactions and generates blocks that add to the ledger of transactions.
Ethereum plans on phasing out mining altogether via Casper, a new proof-of-stake protocol that will replace PoW and help scale Ethereum’s transaction handling capacity to millions of transactions per second.
Proof of Stake is the next generation of consensus. It’s an entirely new form of mining that Ethereum will use in its switch from Proof-of-Work to Proof-of-Stake. With this new mining scheme, Ethereum will be able to process transactions at a much faster rate than before. It does this by creating a virtual mining rig for each participant.
Ethereum’s scalability is limited by the transaction block size. Every time a new transaction is created, it must be added to the end of the blockchain until it reaches the block size limit and another one is created. This means that for every transaction on the network, there has to be a new block mined on top of the old one, which causes latency issues and slows down the network.
Bitcoin miners are an essential component of blockchain technology, which itself is a fundamental component of the technology that supports decentralized applications and digital currencies. PoW blockchains provide security and transaction verification. As such, they are incredibly powerful and valuable to the maintenance of modern businesses — but mining has become increasingly centralized, with 78% of all mining pools in 2018 being operated by just four companies.
Ethereum 2.0 will bring great improvements to the network. With support for Proof of Stake and sharding, the network is expected to achieve massive performance gains in both usability and security. For ETH holders — those who wish to stake their own coins or help others stake by pooling their funds in something called a Validator Pool — it will be possible to help secure the blockchain and potentially get rewarded for their efforts.
The Ethereum foundation is not a company and doesn’t have the same goals and responsibilities that most other businesses have. Rather than pursue profits and growth, the organization is focused on supporting Ether tokens (such as ETH). While it’s hard to measure its success due to a lack of rules, the foundation has certainly grown in size since it began as a small group of individuals.
The Ethereum Foundation is similar to the Bitcoin Foundation in the way it’s a large group for the advancement of technology. But it’s much larger than the Bitcoin Foundation, making it harder to manage. Since there’s no centralized management, volunteers make decisions on how the foundation will operate. One of the more popular proposals for improving how the Ethereum foundation functions are to transition to a DAO.
Ethereum wants to work on fixing two issues at the protocol level — scalability and sustainability. Scalability in Ethereum (as in any blockchain) comes down to the size of blocks and downsizing the amount of data contained within them; sustainability refers to the problem of mining crypto tokens for free energy
With the rise of Ethereum, the overall consensus is to provide a key scaling mechanism for Ethereum to be able to compete with other Cryptocurrencies. In addition to that, it would allow businesses and individuals to utilize Ethereum in a much more efficient manner.
Essentially Ethereum will enable anyone to build and use decentralized applications that run on blockchain technology. Ethereum can be used to codify, decentralize, secure, and trade just about anything: voting, domain names, financial exchanges, crowdfunding, company governance, contracts, and agreements of intellectual property.