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If you’ve spent any time in the past few years reading about the digital assets space, or more broadly the news this past year, then you’ve heard about Ethereum, especially in the context of Bitcoin and other cryptocurrencies.
Curiously, Ethereum seems to simultaneously refer to a cryptocurrency, a standalone blockchain and a Layer 1 network for other blockchains and decentralized finance (DeFi) protocols to operate on. What’s more, it seems as though many aspects of Ethereum seem to be in flux, from the cost to make transactions (referred to as gas fees) to the consensus mechanism it uses to validate transactions. At the point where ETH, Ethereum and Ether seem to be used interchangeably in some of these contexts, one might wonder as to how each of these names factors into this whole mix.
What Is Ether?
Ether, often abbreviated to ETH, is the Ethereum network’s primary token, and the second most popular cryptocurrency by market cap after Bitcoin (BTC). Ether was launched in 2015 as a complement to Bitcoin after years of development from a team led by Vitalik Buterin.
Ether Use Cases
Ether’s use cases are wider than that of most other cryptocurrencies because of the wide range of applications running pieces of code called smart contracts on the Ethereum network. Among these are DeFi protocols, including titans like Uniswap, SushiSwap, Yearn, AAVE and Compound.
The Ethereum network also underpins the majority of NFT projects, thus making Ether the currency of choice for minting, buying and selling most NFTs.
A knock-on effect of the abundance of demand for Ethereum’s limited computing power — through non-fungible tokens (NFTs) and DeFi engagement on the Ethereum Network — is a high price for reserving that power. This requirement translates to astronomically high transaction costs, also known as gas fees, for people looking to make transactions on Ethereum’s blockchain.
Is Ethereum the Same as Ether?
Strictly speaking, Ethereum is not the same as Ether, as Ethereum refers to the blockchain network that underpins Ether and all other Ethereum-based tokens, while Ether is the primary token on the blockchain. However, most figures in the space use the terms almost interchangeably, with the caveat that Ether and ETH always refer to the token, while Ethereum can refer to the network depending on context.
Here are a few examples of how each is used correctly:
"I bought ETH today since the price dipped to a 52-week low."
"Can you send me some Ether? I can't cover the gas fees right now."
"Thousands of apps are built on Ethereum and can be used today."
Use Cases for Ethereum’s Network
The Ethereum network’s utility is largely aligned with Ether’s utility as a token, though the network’s utility is the driver for the token’s utility and value, rather than the inverse being true. Additionally, infrastructural projects driven by Ethereum's large user base like cross-chain bridges and the Ethereum Name Service (ENS) create a positive feedback loop of value for the ecosystem, which then spills over to the Ether token.
Furthermore, when compared to other blockchains, Ethereum’s development and governance processes are open to the community and well documented, which is a good sign for the long-term use cases on Ethereum’s network. A transformative example of one such change is the upcoming Ethereum 2.0 suite of upgrades, which, in addition to the deflationary monetary policy introduced in August’s London fork, includes a transition to proof of stake to reduce energy consumption and the implementation of sharding so as to increase scalability and transaction throughput to be more inline with competitors like Solana.
Where To Buy Ether
To enter the blockchain world, consumers need to exchange fiat currency (such as the U.S. dollar) to purchase cryptocurrencies, much like how one might purchase foreign currency before traveling to another country. These trades are most often facilitated by companies called centralized exchanges (CEXs), some of which include eToro, Gemini and Coinbase Global Inc. (NASDAQ: COIN). By virtue of its immense popularity, Ether can be bought and sold at any CEX and has exchange pairs with any cryptocurrency or fiat currency imaginable.
Individuals typically use tools called wallets to securely store their Ether and other digital assets. These wallets are associated with a unique Ethereum address which Ether transactions are sent to and from. Some examples of always connected hot wallets for the Ethereum network include MetaMask and Tally, both of which offer browser extensions for major browsers.
Cold wallets are hardware wallets that are connected to the internet only when they are powered on, essentially trading convenience for maximum security while still performing the same core function. Ledger makes thumb-drive-sized cold wallets that offer a high degree of compatibility and security.
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Ether vs. Other Cryptocurrencies
On balance, Ether is a safer bet than most other cryptocurrencies, as it is the second largest by market cap while having significantly more daily transactions than Bitcoin. Over the last year or so, the phrase “Ethereum killer” has come into use to refer to various innovative blockchain projects including Solana, Cardano, Avalanche and Algorand. These projects primarily boast increases of speed and energy efficiency and decreases of transaction fees. This rapid progression within the digital assets space reveals Ether’s hegemony within the cryptocurrency space, while Ethereum’s lack of mutual exclusivity with Bitcoin over time shows that this dominance is unlikely to be supplanted outright.
Is Ether a Good Investment?
Like any cryptocurrency not pegged to other assets, Ether can be volatile, both in a negative and positive sense. This being said, Ether’s strong cross-chain connectivity, wide range of Layer 2 networks, deep user base — and the existence of trading pairs between Ether and almost every other cryptocurrency — mean that Ether generally tracks the cryptocurrency market at large while smoothing out the erratic behavior expected of altcoins as investments.
Another caveat to note is that Ether is becoming a deflationary asset following the London fork in August and projected reductions of issuance with Ethereum 2.0 (now referenced to as the merge). The London fork in August began burning Ether at a rate of about -2% annually, while Ether is currently issued at a rate of 4% annually. When the merge happens and Ethereum becomes proof of stake, more Ether will be burned than issued, as the issuance rate will decrease from 4% to around 0.5%. This means Ether will become more scarce in the future, potentially driving up the price of the asset.
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