What is ETH (Ether)?
Ethereum, a decentralized public blockchain platform, is commonly known for its native cryptocurrency Ether, also called ETH. While Bitcoin was designed strictly as a payment method, Ethereum was designed with ambitions to leverage blockchain technology for the creation of diverse applications ranging from DeFi and smart contracts to NFTs and decentralized applications (dApps). If you're new to the concept of cryptocurrency and digital assets, head over to this beginner-friendly article about how Ethereum works.
Ethereum used the proof-of-work consensus mechanism like Bitcoin until September 2022, when Ethereum 2.0 or Eth2 was released, event known as the Ethereum Merge. At that point, Ethereum switched over to the proof-of-stake (POS) algorithm. This switch was part of the Ethereum foundation's ongoing upgrades to improve scalability, security, and sustainability of the chain, and is expected to result in a shift in the distribution of Ether, as stakers will receive a portion of the issuance as rewards for participating in the validation process.
In 2016, a collective of network participants managed to acquire significant control in the Ethereum blockchain, absconding with over $50 million worth of ether that had been collected for a project known as The DAO. This incident led to a pivotal moment in the ecosystem where a majority of the Ethereum community made the decision to rectify the theft by nullifying the prevailing Ethereum blockchain and endorsing a new blockchain version with an amended transaction history, otherwise known as a hard fork. Simultaneously, a minority faction within the community opted to uphold the original blockchain, which subsequently diverged permanently to form the Ethereum Classic (ETC) cryptocurrency.
Understanding Ethereum transactions
A transaction on the Ethereum blockchain is a signed data message sent from one wallet to another. The transaction contains the sender's information as well as the recipient's, the amount being transferred, the smart contract bytecode, and the transaction fee (gas fee) the sender is paying to the network validators.
Transactions are paid using Ether (ETH), the native cryptocurrency of the Ethereum blockchain. This prevents bad actors from congesting the network with unnecessary transactions, and acts as an incentive for users to contribute resources and validate transactions. Each ETH transaction is constituted of a series of operations that occur on the network, and each operation has a cost measured in "gas", paid in gwei (a smaller denomination of Ether, like cents to a dollar or satoshis to a bitcoin).
To purchase ETH, users can go to cryptocurrency exchanges such as Coinbase, Binance, and many more. Crypto exchanges allow you to buy crypto with other cryptocurrencies (for example, you could buy ETH with a stablecoin and vice versa), as well as fiat currencies (think USD) via credit card or paypal. If you'd like to cash out some of your crypto, you can link a bank account to the exchange and send ETH from your Ethereum wallet to the exchange to then have fiat transferred to your account. If it's your first time buying crypto, don't worry! There are tons of tutorials out there that will guide you through the process.
The difference between ETH and BTC
Since the launch of Ethereum in 2015 by Vitalik Buterin and Joe Luben, ether as a cryptocurrency has risen to become the second-largest cryptocurrency by market value. It is outranked only by Bitcoin. In the future, Ethereum wants to take over the world of web3 and automate many processes that still require intermediaries.
ETH and BTC share similarities as they are both digital currencies that can be traded on centralized and decentralized exchanges and stored in crypto wallets. However, Bitcoin was designed as a currency and a store of value, while Ethereum wasn't looking to use blockchain technology for the sole purpose of maintaining a decentralized peer-to-peer electronic cash system, but also for storing computer code that can be used to power tamper and censorship-proof decentralized financial services and applications. Ethereum has quite a few use cases thanks to smart contracts, which allow users to transact with each other without a trusted central authority. Through its functionality, Ethereum allows users to exchange funds, sell or buy non-fungible tokens, use decentralized financial services, and more.
Transaction fees and how they are treated is also an important difference between the two cryptocurrencies. Gas fees (paid in gwei) on the Ethereum network are paid by the participants in Ethereum transactions, while fees associated with Bitcoin transactions are absorbed by the broader network.
One of the most significant differences between the two currencies is how many coins can circulate. The maximum number of bitcoins that can ever be minted and enter circulation is 21 million. ETH, however, is not capped: the time it takes to process an ETH block limits how many coins can be minted each year, but its creation is unlimited. There are over 122 million ETH coins in circulation.