Avoid This Common Mistake: Is Ether and Ethereum The Same?

With new entrants into the cryptocurrency space, there is a common question that arises with those learning about Ethereum: Is Ether and Ethereum the same?

The short answer is “no.” However, they are intertwined as Ether is the native currency of Ethereum that makes it blockchain operate. Whether you’re a business that is executing a deal on a smart contract or an individual sending money to a friend in another country, Ether is the currency that is paying for the computing resources required to make it all happen on the Ethereum blockchain. 

What is Ether?

Ether is the native cryptocurrency of the Ethereum network and it’s the fuel that keeps its ecosystem running. It was created to give a monetary value to operations and avoid fraudulent activities on Ethereum.

Benefits of Ethereum
Source: Ethereum

A primary use of Ether is a medium of exchange. As an owner of Ether, you can use the currency to buy and sell goods and services. Concurrently, application developers use Ether to pay for transaction fees and services, referred as “gas,” on the Ethereum network.

Furthermore, Ether can be used as an incentive for miners or participation in the Ethereum network. Miners get paid in Ether for adding blocks in the Ethereum blockchain.

What is The Use Case for Ether?

The two core features that drive Ethereum’s blockchain are decentralized apps, referred to as “DApps,” and smart contracts. The entire lifecycle of DApps and smart contracts, from their creation to the consumer’s usage, requires computer processing power which is paid for by Ether. 

The amount of Ether required depends on the time and power required to complete the action. In other words, every action performed on the platform has a cost and is paid with Ether. 

Ether Fuels Security on Ethereum

Currently, Ethereum utilizes a Proof of Work consensus algorithm that requires miners to solve complex mathematical equations so as to add blocks to the network. The process is energy-intensive and requires sophisticated hardware and software. 

While Ethereum currently utilizes Proof of Work protocol, there are plans to switch to Proof of Stake protocol, which is seen to be less energy-intensive. With Proof of Stake protocol, the use of Ether will replace miners with participants on Ethereum’s blockchain who will use their ETH holding as collateral to validate transactions. 

What Can Ethereum Be Used For?

1. Crowdfunding for new coins

Ethereum allows companies to create new digital currencies, also known as tokens on their platform. Speculators of these new coins can purchase them in an ICO using Ether. This is the same way Ethereum raised capital during the infancy of Ether. Other Ethereum-based protocols that have successfully raised capital are Augur ($5.3 million) and Golem ($8.6 million)

2. Entertainment

Augur is a platform that allows for automated payments without interference from anyone. Augur has assurance against fraud by having multiple reports of the outcome of the events forecasted, as opposed to a single report like in a centralized prediction market.

Augur has no limit on the number of bets or amount you can win, neither does it take a percentage of earnings.

3. Lending systems

In the US, credit reference bureaus handle massive amounts of financial data, making their systems prone to errors. Resolving errors in credit history and ratings can take forever, leading to a denial of loans and unfavorable interest terms. Decentralized lenders will however use your cryptocurrency as collateral, eliminating the need for credit reports. This will make it easier to get loans, and have more flexible repayment terms.

Total Value Locked in DeFi
Source: DAppTotal

In Summary

While Ether has fueled significant growth in the development and adoption of the Ethereum blockchain, it will be interesting to see how the monetary value will be impacted with Ethereum 2.0.

In particular, there will be large sums of ETH that will be stored in smart contracts for long periods of time in order to operate “nodes,” which are computer equipment and resources to verify transactions and maintain security on the Ethereum blockchain. It would be an understatement to say that there is a lot of excitement for how Ethereum 2.0 and how it will impact the future of Ether.