For any Ethereum-based app, ether acts as the primary "fuel.” Any activity on the blockchain requires an amount of ether to power it, also known as "gas."
In Ethereum, ether can be used for the following things:
- Payments: Like bitcoin, ether can be used for payments. Users can send ether to another user and, just like cash, the payment doesn’t require a third party to process or approve it.
- Transactions fees: Every Ethereum action – from payments to using dapps – requires a fee.
How do I use ether?
First, users need to decide on which ether wallet they plan to store their funds in. Ether can be bought with fiat currencies like the U.S dollar or other cryptocurrency base pairs on a range of different exchanges.
Why are there ether fees?
Every time users send funds to and from a dapp or transfers any ERC20 coin between wallets they must pay a fee to do so. This is because Ethereum currently uses miners to validate transactions on the network. These miners use their specialized hardware to add new transactions to the blockchain. An auction-style system determines how miners choose which transactions to process first. The higher the fee attached to a transaction, the higher up on the miner’s list it goes to be added. This incentivizes the miner to continue operating on the network and helps to cover its ongoing running costs.
Why do fees fluctuate so much in price?
Fees on the Ethereum network are not fixed, but in the future they will become more stable once EIP 1559 rolls out. These ether fees occasionally spike because of Ethereum's scalability problems. There is limited space in the Ethereum blockchain. When the network is congested, fees increase in cost as users compete to get their transaction processed ahead of everyone else's transactions. The network can get congested when there’s a sharp change in Ethereum’s price or when there’s a spike in activity on dapps.
What is Ethereum gas?
Ethereum transaction fees are calculated based on how much "gas" the action requires.
Each action costs an amount of gas based on the computational power required and how long it takes to run. A transaction costs 500 gas, for example, which is paid in ether.
In this way, ether has sometimes been called "digital oil" because it's used to pay for a certain amount of mileage, so to speak.
How is ether used to power a dapp?
Ether works like fuel for dapps on the network. Say you’re using an Ethereum-based notebook dapp that allows you to write immutable to-do lists that are saved on the blockchain. To post a note, a user might need to pay a transaction fee in ether to add a new list to the notebook.
Dapps each enable this in a different way. When a user goes to post a note, for instance, the notebook app might prompt the user to send the fee. Metamask, an ERC20 wallet built into browsers, can be helpful for this because it sits in the corner of the browser and can automatically understand when to help with sending transactions.
How is ether different from Ethereum?
Ethereum is the entire network. Ether is the main token that runs on it, making it a crucial part of Ethereum.
How many ether are there?
Five ether are created roughly every 12 seconds. But beyond that, the rules for ether’s economy are open-ended and frequently change as new improvement proposals are agreed upon by the Ethereum developer community. While bitcoin has a hard cap of 21 million bitcoins, Ethereum's main token does not have a set max supply limit.
How many Ethereum tokens were created initially?
Sixty million tokens were purchased by users in Ethereum's initial 2014 crowdfunding campaign. Another 12 million went to the Ethereum Foundation, which is a group of researchers and developers that works on improving the underlying technology.
By Alyssa Hertig
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.