What is ether? How does it differ from past tokens such as bitcoin and litecoin? What are all the usages of ether?


4 Answers 4


Ether serves two main purposes for ethereum:

  1. Just like Bitcoin and Litecoin on their respective blockchain, ether is a fungible asset/currency on the ethereum blockchain that creates the necessary incentive for miners to maintain the network.

  2. Unlike Bitcoin and Litecoin, ether is also used to pay for the computations that you ask the network to perform. Since one can submit arbitrary code to be executed on the ethereum blockchain, this mechanism ensures that your code won't run forever and thus clog up the entire network. See the halting problem. You also need to pay ether for submitting new contracts to the blockchain, so that we won't have a million contracts using up excessive storage. When ether is used in this way, to pay for computation and storage, it is called gas.

More about gas here: https://ethereum.gitbooks.io/frontier-guide/content/costs.html

  • Ether could be used as a 'regular' digital currency also, but it's specifically meant for paying for computations. Bit related: there's some work in progress get bitcoin on ethereum by means of a 2-way-peg: medium.com/@ConsenSys/…
    – Gerbrand
    Jan 22, 2016 at 15:19
  • "ether is also used to pay for the computations that you ask the network to perform. (...) You also need to pay ether for submitting new contracts to the blockchain" OK, but concretely who gets paid for that? Miners? People running a node on their computer?...
    – Georg
    Nov 13, 2017 at 23:38

The primary use of Ether is :

  1. To pay for Gas that are required of all transactions (contracts and non contract txs).

  2. Ether is also used as a reward for miners who help secure the network through POW (though this will all change in the future when POS is implemented)

  3. And because Ether has utility, this gives it a value. Which means that it can be used for exchange of services, goods, virtual tokens. This does make it similar like a currency, although it was not designed as the primary use.

  • So tokens and smart property and other stuff that was issued by ethereum is denominated in ether?
    – Tomas
    Feb 28, 2016 at 22:30
  • No necessarily, tokens, smart assets, etc are meta coins. They do not necessarily need to be denominated in Ether. These meta coins are actually just ledger entries in a smart contract and the utility of these coins are normally determined by the contract creator. However, to complicate things further in the case of Ethereum its actually possible to "back" these meta coins with Ether or another Meta coin through the use of a smart contract. The smart contract can then act as a bridge for these Meta to be exchanged back to Ether or a another Meta coin that the contract holds.
    – mtbitcoin
    Feb 29, 2016 at 3:56

As far as I know , Ether is a element (a fuel) for operating the distributed application platform ethereum. It is a form of payment made by the clients of the platform to the machines executing the requested operation .


May 2017 UPDATE

The role of Ether is quickly evolving beyond the original purpose for the Ethereum community, and so I want to add two emerging new uses:

(1) Start-up Financing. Bitcoins and Ethers are now being used in crowsdsales of blockchain-based products and cryptocurrency ventures, as part of ICOs (Initial Coin Offerings). Here is a list of ICOs, a number of which (like Bancor) require Ethers. https://www.smithandcrown.com/icos/

(2) As a reserve currency for smart tokens. The Bancor Network has published a white paper explaining its plan to start using the Ether as a reserve currency for the Bancor (The Ether will back the Bancor in a specific given ratio, the CRR, i.e. the credit reserve ratio, still to be announced). This will help to keep the Bancor liquid, and ensure that any smart token issued on the Bancor Network can be immediately exchanged for any other.

Read these to better understand these new roles for the Ether. https://bancor.network/static/Bancor_Protocol_FAQ.pdf https://bancor.network/static/Bancor_Protocol_Whitepaper_en.pdf https://blog.bancor.network/coins-are-networks-and-crowdsales-are-their-killer-app-a6ebc16bef31

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