Intro to ether
To help you better understand this page, we recommend you first read Introduction to Ethereum.
A cryptocurrency is a medium of exchange secured by a blockchain-based ledger.
A medium of exchange is anything widely accepted as payment for goods and services, and a ledger is a data store that keeps track of transactions. Blockchain technology allows users to make transactions on the ledger without reliance upon a trusted third party to maintain the ledger.
The first cryptocurrency was Bitcoin, created by Satoshi Nakamoto. Since Bitcoin's release in 2009, people have made thousands of cryptocurrencies across many different blockchains.
Ether (ETH) is the cryptocurrency used for many things on the Ethereum network. Fundamentally, it is the only acceptable form of payment for transaction fees, and after the merge is also required in order to validate and propose blocks on Mainnet. Ether is also used as a primary form of collateral in the DeFi lending markets, as a unit of account in NFT marketplaces, as payment earned for performing services or selling real-world goods, and more.
Ethereum allows developers to create decentralized applications (dapps), which all share a pool of computing power. This shared pool is finite, so Ethereum needs a mechanism to determine who gets to use it. Otherwise, a dapp could accidentally or maliciously consume all network resources, which would block others from accessing it.
The ether cryptocurrency supports a pricing mechanism for Ethereum's computing power. When users want to make a transaction, they must pay ether to have their transaction recognized on the blockchain. These usage costs are known as gas fees, and the gas fee depends on the amount of computing power required to execute the transaction and the network-wide demand for computing power at the time.
Therefore, even if a malicious dapp submitted an infinite loop, the transaction would eventually run out of ether and terminate, allowing the network to return to normal.
Minting is the process in which new ether gets created on the Ethereum ledger. The underlying Ethereum protocol creates the new ether, and it is not possible for a user to create ether.
Ether is minted when a miner creates a block on the Ethereum blockchain. As an incentive to miners, the protocol grants a reward in each block, incrementing the balance of an address set by the block's miner. The block reward has changed over time, and today it is 2 ETH per block.
As well as creating ether through block rewards, ether can get destroyed by a process called 'burning'. When ether gets burned, it gets removed from circulation permanently.
Ether burn occurs in every transaction on Ethereum. When users pay for their transactions, their base gas fee gets destroyed by the protocol. Depending on network demand, some blocks burn more ether than they mint.
Since many transactions on Ethereum are small, ether has several denominations which may be referenced for smaller amounts. Of these denominations, Wei and gwei are particularly important.
Wei is the smallest possible amount of ether, and as a result, many technical implementations, such as the Ethereum Yellowpaper, will base all calculations in Wei.
Gwei, short for giga-wei, is often used to describe gas costs on Ethereum.
|Denomination||Value in ether||Common Usage|
|Gwei||10-9||Human-readable gas fees|
Each transaction on Ethereum contains a
value field, which specifies the amount of ether to be transferred, denominated in wei, to send from the sender's address to the recipient address.
When the recipient address is a smart contract, this transferred ether may be used to pay for gas when the smart contract executes its code.
Users can query the ether balance of any account by inspecting the account's
balance field, which shows ether holdings denominated in wei.
- Defining Ether and Ethereum – CME Group
- Ethereum Whitepaper: The original proposal for Ethereum. This document includes a description of ether and the motivations behind its creation.
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