It’s hard being number two. No matter how successful other cryptocurrencies become or how particular their application may be, the cryptocurrency market lives and breathes as Bitcoin lives and breathes. Even so, one thing is becoming more and more clear: it is not nearly as lonely at the top as it used to be. And if any cryptocurrency stands a chance to challenge Bitcoin, or at the very least deserves to be its sidekick, it’s Ethereum.
But Ethereum is not really a cryptocurrency in the typical sense of the word. Trying to understand it as such may cause some confusion, which is why a lot of people, even prospective investors, don’t know the difference between Ethereum and Ether, and a great many deals more have never heard of some of the key concepts and colloquial terms of Ethereum – like computing platform, dapps, digital oil, gas, Ethereum Virtual Machine, smart contract functionality, the internet-of-things and digital tokens pegged to other assets, just to name a few.
Luckily, we are here to clear up a lot of that confusion, and we’re kicking it off by defining – as clearly as possible – what Ether is.
What is Ether?
When it comes to Bitcoin, cryptocurrencies in general, meaning the blockchain and the underlying technology, share the same name as the individual coins – the units of value that are traded, mined and distributed.
Since Ethereum is different in several ways (and we’ll get to that soon), the same does not apply here. When we’re talking about the blockchain, about the network, about the platform, we use the term Ethereum. Conversely, when we talk about the value tokens, we use the term Ether. On the cryptocurrency market, Ether is designated by the code ETH. The cryptocurrency symbol for Ether is the Greek uppercase Xi character (Ξ).
As the unit of currency within Ethereum, Ether is primarily intended as a token that is used to pay for different services on the platform.
When talking about Ether, many describe it as the energy source used for implementing different options and services within Ethereum, as something that keeps the motor running.
Although there has been a lot of talk lately about Ether’s success compared to Bitcoin, that discussion is actually pretty irrelevant. Even we have made a habit of using Bitcoin for comparison, but that is not because Bitcoin and Ether are rivals. It is merely because Bitcoin is the most successful and best-known cryptocurrency on the cryptocurrency market, which means that it often serves as a touchstone to appraise the value and the significance of other cryptocurrencies, not to mention its role as a starting point for explaining certain concepts.
The reason why Ether does not seek to dethrone Bitcoin is simple. Their sphere and their use are not the same. While Bitcoin is primarily digital money and a revolutionary payment system, Ether is more restricted when it comes to its reach and its use. It is also a digital asset, but it is used first and foremost to pay for services within Ethereum, not to be used elsewhere or replace other currencies and means of payment.
Among the services that can be bought with Ether, the most important one is the use of various decentralized apps on the network. They are decentralized because they do not rely on any companies like Apple or Google for their development, distribution and revenue. That is why Ether exists – to fill the void of there being no big names and special interests behind apps, and to let users decide what they want to support by spending Ether to keep it running.
But enough of the Ether definition. Who is getting paid in Ether?
The users of the Ethereum platform are paying the machines that are performing the operations they need. Also, developers and programmers are getting paid in Ether to create useful applications and to maintain the network’s health. In short, everyone who contributes resources to the Ethereum platform, be it hardware, software or man hours, receives compensation in Ether.
This system ensures that Ethereum stays attractive not only in the current climate, but that it gets perfected, increasing the network’s stability and growth, thus making both Ethereum and Ether always fresh and up to date.
Ethereum is different from other cryptocurrencies, since it’s not only a cryptocurrency like Bitcoin. Ethereum is a publicly distributed computing platform based on blockchain technology.
Its Ethereum Virtual Machine is a computationally universal virtual machine, which uses a decentralized international network to execute scripts. Ethereum is able to function thanks to two main concepts: Gas, an internal mechanism which determines the price of a computation, and Ether (previously discussed), which is used as compensation – to cover for the price.
The blockchain is not there to support the existence of a currency. Instead, the currency is there to support the platform, with the network’s functionality as the primary focus.
Ether and Ethereum, though often confused, are not the same thing: Ether is the digital asset, while Ethereum is the platform where it is spent.
Ether exists to facilitate the platform’s utility, instead of the platform being there to advance Ether’s goal of replacing fiat currencies or revolutionizing payments. Ether and Ethereum are inextricable; you cannot have one without the other- Ethereum needs Ether to function, while Ether cannot be used outside of Ethereum.
Like many other cryptocurrencies, Ether too is backed by a blockchain. A lot of cryptocurrencies, whether they are based on a Proof-of-Work or a consensus algorithm, seek to replace traditional ways of payment at least to some degree based on one specific selling point or one well-defined application. Some are faster, some are better for banking, some are better for microtransactions, and some are good at helping underserved areas and populations. And while more and more companies accept BTC as payment, which means that Bitcoin is fulfilling its purpose as actual means of payment, Ether also has a real-world use beyond being merely an asset for investors to bet on.
The difference is, any currency or means of payment can do what Bitcoin can do when it comes to payments – and some do it better. It is only Bitcoin doing it differently and being decentralized that makes the whole thing more appealing. However, no other currency, means of payment or cryptocurrency can do what Ether can do.
Ether’s slightly altered blockchain technology is used specifically for smart contracts. Various large companies are experimenting with Ether and the many potential uses that can be derived from this compatibility.
Until the network fully matures, however, Ether is consistently used first and foremost to cover for computational services and transaction fees on the Ethereum platform. But we have already established that. As an actual example, you can use Ether to pay to run an application or a program, you can use it to post, modify or delete notes and you can use it if you want the Ethereum network to process certain changes.
The amount of ether that is used for any action depends on how much it costs – in Ether terms, how much ‘gas’ the action needs. Gas is a measure based on the time required to run a certain process, as well as the computational power required.
So, when someone says that you can use Ether to pay for gas, they are absolutely right. But they probably don’t mean at the gas station, at least for the time being.
After an unsteady couple of days, the Ether price seems pretty stable around the $1100 range on January 18. There is still a lot of volatility – while it is up 37% (almost $300) over the last 24 hours, its low was under $800, and it is still 10% down compared to last week, not to mention its record high of $1,428.73 on January 14. Basically, a lot of ups and downs. But the overall trend is telling and there is no hiding from the facts: the Ether price has increased by 13,000 percent during the previous year. In March, it was only $20, in May, it was $90, and in June, it was already $420.
Undoubtedly, there were many worrying lows along the way and days when the price halved, but over time, there is more than enough incentive for Ethereum investors to hold on to their Ether. The Ether price may not repeat its success from last year and become more than 130 times more valuable than at the outset, but Steven Nerayoff, Ethereum’s co-creator, says it could triple during 2018 – and easily. So far, there’s no reason to doubt that claim.
Like many other cryptocurrencies based on a Proof-of-Work algorithm, Ethereum also relies on mining. So, let’s get to it. What is Ether mining?
If you are familiar with the concept of mining in other cryptocurrencies, it is pretty much the same. Granted, it is true that the Ethereum platform is more than just a ledger to keep track of all the transactions and payments. It is run by computers from all corners of the world, which contribute their computational power to process the contracts and secure the network. However, even though it does more than just keep track of the transactions like a regular blockchain, the process of confirming data and adding new blocks to the blockchain is basically the same.
For the contributors to the network, the computational power that they contribute does not come for free. To cover for that, Ethereum awards a small amount of Ether to the machine that creates the latest block on the blockchain. This happens every 15 seconds on average, and the award equals 3 Ether. Just like with other blockchains, the proof of worth algorithm is random, but the rewards are dished out proportionally with the computational power of the machine, meaning: stronger machine = more rewards. No surprises there.
However, the rewards given for mining Ether do have one potential drawback, at least according to some investors. Since the total amount of Ether is not exactly known (like with Bitcoin, where there is a fixed amount), there is some concern over the increasing supply, which may lead to inflation down the line.
Ether’s developers nevertheless claim there’s no cause for concern. Less than 18 million Ether are mined every year. And while it is true that this number currently increases the overall number of Ether on the network, over a couple of years, the number of Ether that get destroyed or unused due to circumstances like misplaced private keys and death should equal the influx of new Ether.
Even if it weren’t so, for now it seems that we will never get to that point anyway. There are plans in development to replace the current Proof-of-Work algorithm with a new Proof-of-Stake (consensus) algorithm. The new consensus algorithm will be called Casper. Under Casper, the final number of Ether is supposed to remain unchanged and never actually go above current-day levels.
There’s no arguing against the fact that, when Casper finally launches, it will be far from friendly towards miners. For now, however, Ether mining is absolutely worth it. If you’ve got the machine to pull it off, it’s back to the salt mines for you.
Whether you get your Ether through mining or via cryptocurrency trading, you will need a wallet to store it and make use of it. Currently, there are several types of wallets to choose from. Hardware wallets are small devices similar to a flash drive. They connect to your main device via a USB port. Desktop wallets are programs that you need to install on your hard drive (typically on a personal computer). Web wallets are similar to websites that you can visit and log into, without installing anything. Lastly, mobile wallets are developed specifically for smartphones and other mobile devices. Basically, there is an option out there for every type of user.
Of the desktop wallets, we recommend one of the following:
The only (exclusively) mobile wallet that stands out at the moment is Jaxx. It is superior to other Ether wallets if cryptocurrency trading is your thing and you’re dabbling in close to a dozen cryptocurrencies. Jaxx supports 13. It is very, very flexible (available on Windows, Mac OS, Linux, as an extension on Chrome and Firefox and on both Apple and Android mobile devices). Additionally, it is supported by a passionate, dedicated community.
Lastly, as a bonus, we feel obligated to mention the rare paper wallets like ETHAdress. When it comes to cold storage, there is no option that is more affordable. With paper wallets, your public and private keys are printed on paper, which can be additionally encrypted for extra security.
If the Ether definition we came up with earlier didn’t prove informative enough for you, don’t worry: we’ve got another one for you, only this time a little different. There is no mystery in the fact that Ether gets its name from an archaic classical element which scientists in the past used to describe a number of physical and chemical laws. It is now popular in steampunk fiction (think late 19th century, zeppelins and Kate Bush’s Cloudbusting).
Ether or aether, as everyone believed at the time, was a very elusive and elastic substance which permeated all space, including the space between atoms. Its unique properties made it vibrate, thus facilitating all physical phenomena, including gravity, light and electromagnetic radiation. Aether was the all-encompassing and ever-present basis which enabled every single process in the universe happen and which allowed all objects to interact. Everything was immersed in aether.
Even though it’s mostly forgotten by now, aether’s legacy lives on. Conceptually, the cryptocurrency we know as Ether shares many similarities with the ancient elusive substance. Within its own Ethereum network, Ether acts as an ever present and indispensable substance and a catalyst for all actions and processes.
It is pretty interesting to think that initially, up to almost a year ago, Ether price wasn’t much higher than that of empty space between atoms. But as users and investors believe in the cryptocurrency and its ability to keep things running smoothly, its value grows.
In the beginning, many did not know what Ethereum was or what role it played in the economy. Now, things are different, with Ethereum becoming a household name, next to Bitcoin and ahead of Litecoin, Ripple and many others.
As technology develops and some minor hurdles get overcome, it’s becoming more and more apparent that Ether is real and that it’s here to stay. The confidence is now drawing in successful companies, which will help grow the network further and may make those who are bold enough to invest a whole lot of money. If you want to be one of them, check out our other articles and learn all about the exciting world of cryptocurrencies.
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