What is Ether (ETH)?
Now that you understand the basics of Ethereum, let’s dig into the concept of the Ethereum token, Ether. Just like a company stock has a ticker symbol, Ether is often abbreviated as ETH.
Ethereum is an open-source platform to run decentralized applications (“dapps”). Ethereum is unique in that no person or company owns the system. However, the resources used to run it are not free. This network of resources, miners, are paid in ‘Ether’ in proportion to their contribution of computational resources to the system.
Ether is a digital bearer asset, similar to Bitcoin. No third party is required to approve a transaction using it and whoever holds the token has ownership of the asset.
The atomic cost to run a dapp on Ethereum is often referred to as ‘gas’. This gas payment, made in Ether, assures a fair and orderly computation that dapps require to run.
An example can be helpful. Imagine there was a social networking application, like Facebook, running on Ethereum. Posting a photo to the network would require the user posting the photo to pay a small transaction fee, gas, to the network participants. This fee, the gas, would be paid in Ether to ensure the transaction complete. This fee would be proportional to the amount of resources required to complete it.
Ethereum has a defined set of rules to govern the economic rules under which Ether can be created and distributed. One important point is that unlike Bitcoin, which has a fixed cap of 21 million bitcoins, Ether has no upper bound.
Originally, 60 Million Ether was purchased by users in a crowdfunding campaign. At that time, 12M Ether was allocated to the Ethereum Foundation. The Foundation funds research to advance the Ethereum blockchain. And every 12 seconds, 5 ETH is allocated to miners that provide computational resources to verify transactions on the network.
Today, Ethereum is based on a Proof of Work computational model that rewards miners for their contributions based on resources provided to the network. In the future, Ethereum plans to move to a Proof of Stake model, changing how transactions are validated and Ether is awarded. That’s best left for another article!
Next
Now that you’ve got the basics of Ethereum and ETH down, check out part 3 of our series, How to Buy Ethereum, so you can own some yourself!
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