Ether (ETH) Explained

Everything you need to know about Ether’s history and technology

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Ether (ETH) is the native cryptocurrency of the Ethereum blockchain network. You can buy, sell, and hold Ether as a digital currency, and use ETH to pay for purchases and transaction fees on the ethereum network. After bitcoin, ETH ranks as the second-largest cryptocurrency, with a total market value of hundreds of billions of dollars.

If you’re new to cryptocurrency, you may be interested in learning more about Ether. We’ll take a look here at what ether is and how ETH works.

Key Takeaways

  • Ether is the native cryptocurrency of the ethereum network and is the second largest cryptocurrency by market capitalization
  • Ether can be used in transactions, to purchase other digital assets, to pay for transaction fees or to reward ethereum network validators
  • After ethereum's move to a proof of stake consensus, ether will no longer be mined and its daily creation supply will come down by 90%

What Is Ether?

Ether is the digital currency native to the ethereum blockchain. Ether is required to pay fees for processing transactions on the ethereum network, and Ether owners can use their ETH to make purchases from any merchant that accepts the digital currency. Many non-fungible tokens (NFTs) can only be purchased with ETH.

Ethereum launched in 2015 and is an open-source project, meaning that anyone can view and contribute to the platform’s code. The ethereum blockchain uses smart contracts, which are electronic contracts that can be programmed to execute automatically.

The ethereum blockchain moved from its original proof of work protocol to verify transactions to a proof of stake mechanism in Sept. 2022. This move changes the way new ETH is issued on the blockchain.

Special Features of Ether

Ether stands out because it’s the native coin of the ethereum platform, which supports a large ecosystem of blockchain-based projects.

Many cryptocurrencies, decentralized applications, and decentralized autonomous organizations operate using the ethereum platform. Each of these projects use ether to pay transaction processing fees—known as gas—to ethereum network operators.

How To Mine Ether

On Sept. 15, 2022, the ethereum blockchain completed its transformation from a proof of work protocol to proof of stake consensus via an upgrade called the merge.

After the ethereum network's conversion to proof of stake, ether will no longer be mined. New ether will be introduced in supply through a process called issuance.

Prior to its transformation, ether was minted using a computational process called mining, which is associated with the proof-of-work operating protocol. Anyone with compatible computer hardware and software could mine Ether, although the process was competitive and resource intensive.

Miners who added blocks of ether transactions to the Ethereum blockchain earned a transaction processing fees, plus two new Ether tokens.

Ether Issuance After The Merge

After the merge and its complete conversion into a proof of stake platform, the ethereum network will see a big difference in the way new ether is introduced into the market and the rewards associated with it.

In a proof of stake consensus mechanism, network members who own the cryptocurrency (ether in this case), will decide which members get to verify transactions. This decision is random but is typically based on how much cryptocurrency (stake) you own. The designated validators verify transactions and receive rewards for blocks they add to the blockchain.

Under this new protocol, ether will no longer be mined but will be issued instead. This issuance will be deposited with validators as their reward.

Remember, proof of work was very energy intensive because each miner was competing against other. With no competition involved, computational effort of designated validators is much less than miners, and therefore rewards for validation are much lower than mining. With lower rewards to be given out, there will be fewer ETH issued every day.

Prior to the merge, nearly 13,000 ETH was created everyday as miner rewards. After the merge, only 1,600 ETH will be issued every day as validator rewards. That means daily ETH creation will drop by nearly 90%.

How To Buy Ether

Anyone with a compatible cryptocurrency wallet or exchange account can buy Ether. Using a centralized exchange such as Coinbase, these are the simple steps to buy Ether:

  1. Establish and fund an exchange account: To get started, you need an account with a cryptocurrency exchange. After submitting the required personal information and proof of identity, you can fund the account with your local currency.
  2. Initiate an Ether transaction: You can initiate a transaction to buy Ether using the exchange’s web or mobile app. Be sure to double-check the transaction details, including any fees, before clicking the “buy” button.
  3. Safely store your Ether: Once the ETH purchase is complete, your Ether is automatically deposited into a digital wallet. That wallet can be hosted by the cryptocurrency exchange, or be a hardware or software wallet that is self-hosted.

Fees and Expenses

You may have heard something about high Ethereum gas fees. If you buy Ether through a centralized exchange such as Coinbase, you are charged a fee based only on the exchange’s fee schedule. However, if you use a decentralized exchange (DEX) such as Uniswap to buy Ether, you are obligated to pay the prevailing Ethereum gas fee.

Prior to August 2021, gas fees could vary widely based on how busy or congested the Ethereum platform was when you place your ETH order. But in August 2021, ethereum rolled out the London Upgrade that helped maintain transaction prices to a reasonable level by destroying some ETH that was paid as transaction fees.

Burning is the process by which cryptocurrency supply is destroyed. Burning can be used to maintain the supply for a cryptocurrency or can also be used as a way to validate transactions through a consensus mechanism call proof of burn.

After the London Upgrade, a basic transaction fees paid in ETH as a part of every ethereum transaction is burned. This process was further refined after the merge, where equivalent of the 1,600 ETH issued every day will be burned daily. This removed any inflationary pressures on ETH.

Notable Happenings

As a major digital currency, ether has a colorful past. Here are some major milestones in ethereum's relatively short history:

  • Ethereum whitepaper released: In 2013, creator Vitalik Buterin published a paper describing Ethereum as a concept.
  • Ethereum launched: After a brief testing period in 2014 and several test versions, the official launch of the ethereum platform occurred in 2015. ether’s starting price was $1.24.
  • Ethereum Classic split: After a project on the ethereum platform was hacked in 2016, ethereum split into two blockchains: Ethereum and ethereum Classic. The ethereum Classic version fully accounts for the losses from the theft.
  • London Upgrade: In August 2021, the London Upgrade went live, introducing ether burning to help reduce transaction fees on. the ethereum network.
  • Beacon Chain: In December 2021, in a first step towards a move to proof of stake (PoS), the beacon chain went live. The beacon chain operated with POS, to make sure the transition of the ethereum Mainnet to PoS went smoothly.
  • The Merge: In Sept. 2022, ethereum's transition to proof-of-stake means that Ether transactions will use less energy and not require special computing hardware.

Frequently Asked Questions (FAQs)

What is ether used for?

Ether (ETH) is the native cryptocurrency of the ethereum blockchain. Ether is used to pay for transaction fees and rewards to validators who verify dat on the blockchain. You may used ether to purchase other cryptocurrencies or digital assets such as non-fungible tokens (NFTs). Ether may also be used to pay gas fees for transactions involving other digital assets.

What is wrapped ether?

While ether (ETH) is the native cryptocurrency of the ethereum blockchain, there are many applications or cryptocurrencies that are built on top the ethereum network. Think for example a non-fungible asset. By using a smart contract to convert your ETH to wrapped ether (WETH), you can use your ETH to transact on those platforms. Converting your ETH to a wrapped ETH is simple and an option that many digital asset exchanges such as OpenSea allow with a simple touch of a button.

Article Sources

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  2. CoinMarketCap. “Top 100 Crypto Coins by Market Capitalization.”

  3. OpenSea. “You Need an Ethereum Wallet To Use OpenSea.

  4. Ethereum.org. “The History of Ethereum.

  5. GitHub. “Ethereum.

  6. Ethereum.org. “Introduction to Smart Contracts.”

  7. Ethereum.org. "The Merge."

  8. Ethereum.org. "How The Merge impacts ETH supply."

  9. Ethereum.org. “Ethereum-Powered Tools and Services.”

  10. Ethereum.org. “Gas and Fees.”

  11. Ethereum.org. “Mining.”

  12. Ethereum.org. “Proof-of-Work (PoW).”

  13. Ethereum.org. “Proof-of-Stake (PoS).”

  14. Ethereum.org. "The Beacon Chain."

  15. OpenSea. "What's WETH? How do I get it?"