What Is Ether (ETH)? Ethereum's Cryptocurrency Explained

Ether (ETH) is the native cryptocurrency of Ethereum, a decentralized blockchain that runs programs called smart contracts. Ethereum is the network and software platform. Ether is the asset that pays for using it. Every transaction, token transfer or smart contract action on Ethereum costs a fee paid in ETH, and ETH is also what validators lock up as collateral to secure the network under proof of stake. People also hold and trade ether as an investment, which is why its price is usually quoted under the name “Ethereum.” The price and market cap figures above refer to ETH, the second-largest cryptocurrency by market value after bitcoin.

Ethereum and Ether: The Platform and Its Currency

The two names are often used interchangeably, but they describe different things.

• Ethereum is a blockchain and a shared computing platform. Anyone can deploy code to it, and that code runs the same way on every node in the network. Its own description of itself as “programmable infrastructure” captures the idea: it is meant to be a base layer for applications, not only a payment system.
• Ether (ETH) is the unit of value inside that system. It compensates the people who run the network, prices the computing work that applications consume, and serves as the main form of money in Ethereum-based finance.

Ethereum has no central owner, but the computers that run it cost money to operate. Ether pays those costs. Transaction fees in ETH go partly to the validator that includes the transaction and are partly destroyed (more on that below), and validators also earn newly issued ETH for proposing and confirming blocks. Together, fees and rewards give independent operators a reason to keep the network secure.

How the Ethereum Blockchain Works

Blocks and the Shared Ledger

Ethereum stores its data on a blockchain, a distributed ledger in which records are grouped into blocks. Each block contains a cryptographic hash of the one before it, so changing an old record would break every later link, which is why confirmed history is treated as effectively permanent. Every full node keeps its own copy and checks new blocks against the protocol rules.

What separates Ethereum from a simple payment ledger is its state. Besides account balances, the network keeps track of the code and stored data of every smart contract. Each block updates that state.

The Ethereum Virtual Machine and Smart Contracts

The Ethereum Virtual Machine (EVM) is the runtime environment that executes smart contracts. A smart contract is a program stored at an address on the blockchain. When someone sends a transaction to it, every node runs the same code with the same inputs and reaches the same result. This is how a decentralized exchange can swap tokens or a lending protocol can issue a loan without a company in the middle: the rules are in the code, and the network enforces them.

Applications built from smart contracts are called decentralized applications (dApps). Because no single server hosts them, they are harder for any one party to shut down or alter, although they are only as safe as their code.

What Is Used to Build the Ethereum Blockchain

Ethereum is built from several layers of software:

• Smart contracts are usually written in Solidity, a language designed for Ethereum, or in Vyper, a Python-like alternative, and compiled into EVM bytecode, which is what runs on the network.
• Client software runs the nodes. Since the 2022 switch to proof of stake, each node pairs an execution client, which processes transactions and runs the EVM, with a consensus client, which handles proof of stake. Several independent teams maintain clients, so a bug in one does not take down the whole network.
• Token standards such as ERC-20 for interchangeable tokens, including stablecoins like Tether (USDT) and USD Coin (USDC), and ERC-721 for non-fungible tokens let wallets and exchanges support thousands of tokens without custom code for each.

Gas: How Fees Are Paid

Every operation on the EVM has a cost measured in gas. A simple ETH transfer uses a fixed, small amount of gas. A complex DeFi trade that touches several contracts uses much more. The fee you pay equals the gas used multiplied by the price per unit of gas.

Since the London upgrade in 2021 (EIP-1559), that price has two parts:

• A base fee, set by the protocol according to how full recent blocks were. The base fee is burned, meaning it is removed from circulation.
• A priority fee (tip), which goes to the validator and encourages faster inclusion.

An example of the arithmetic: if a transaction uses 21,000 gas and the combined base fee and tip come to 20 gwei per unit of gas, the fee is 21,000 × 20 = 420,000 gwei, or 0.00042 ETH. The dollar cost then depends on the ETH price at that moment. When demand for block space spikes, the base fee rises, which is why Ethereum fees have at times climbed to several dollars or more for a single transaction.

Units of Ether

Ether is divisible to 18 decimal places. The smallest unit is the wei, and 1 ETH equals 10^18 wei. Gas prices are normally quoted in gwei, where 1 gwei equals one billion (10^9) wei, or 0.000000001 ETH. The intermediate denominations exist but are rarely used in practice.

Proof of Stake and Staking

Ethereum originally used proof of work, the same broad approach as bitcoin, in which miners compete to solve computational puzzles. In September 2022 the network moved to proof of stake in an upgrade known as the Merge, which cut its energy use dramatically because mining was no longer needed.

Under proof of stake, validators lock up ETH as collateral and take turns proposing and attesting to blocks:

• A solo validator must stake 32 ETH and run validator software.
• Holders with less than 32 ETH can join a staking pool or use an exchange’s staking service, which combines deposits and shares the rewards, minus fees.
• One validator is selected to propose each block. Groups of other validators, called committees, check it and vote on whether it is valid. These votes are called attestations.

Ethereum’s consensus mechanism, Gasper, decides which chain is canonical, when blocks become final, and how validators are rewarded or penalized. Validators that go offline lose small amounts of ETH. Those that break the rules in ways that could harm the network, such as signing two conflicting blocks, can be slashed: part of their stake is destroyed and they are removed from the validator set.

Staking ties up capital, and withdrawals of staked ETH only became possible with the Shanghai/Capella upgrade in 2023. Staking through a third party also adds the risk of that provider, on top of slashing risk and the price risk of ETH itself.

ETH Supply

Ether has no maximum supply, a sharp contrast with bitcoin, which is capped at 21 million coins. Circulating supply and total supply are the same figure, so there is no locked or unreleased reserve counted separately.

No cap does not mean unlimited growth in practice. Two forces act on supply at the same time:

1. Issuance: new ETH is created as rewards for validators. Under proof of stake, issuance is much lower than it was under mining.
2. Burning: the base fee on every transaction is destroyed.

When network activity is high, more ETH can be burned than issued, and total supply shrinks for that period. When activity is low, issuance outweighs burning and supply grows. Net supply change is therefore a function of network usage, not a fixed schedule.

A Short History of Ethereum

• 2013 to 2014: Vitalik Buterin proposed Ethereum in a white paper, arguing that blockchains could support general-purpose programs, not just payments.
• 2015: The network launched, with Joe Lubin, later founder of ConsenSys, among the co-founders.
• 2016: An attacker exploited a flaw in The DAO, an early investment project on Ethereum, and drained ether worth more than $60 million at the time. Most of the community backed a hard fork that rewrote the chain’s history to return the funds. A minority kept the original chain, which continues as Ethereum Classic (ETC).
• 2021: The London upgrade introduced EIP-1559 and fee burning.
• 2022: The Merge moved Ethereum from proof of work to proof of stake.
• 2023: The Shanghai/Capella upgrade enabled withdrawals of staked ETH.
• March 13, 2024: The Dencun upgrade introduced proto-danksharding, a separate, cheaper data space called “blobs” that layer-2 networks use to post their transaction data to Ethereum.

Scaling and the Roadmap

Ethereum’s base layer processes a limited number of transactions per block, and congestion has repeatedly pushed gas fees higher. Its scaling approach relies on rollups: layer-2 networks that execute transactions off the main chain and post compressed data back to Ethereum for security. Proto-danksharding made that posted data cheaper. Full danksharding aims to expand blob capacity much further using data availability sampling, which lets nodes verify that data is available without downloading all of it.

What Ether Is Used For

Paying for the network. This is the one use built into the protocol. Any action on Ethereum, from sending a stablecoin to minting an NFT, requires ETH for gas.

Staking. Holders can stake ETH to help secure the network and earn rewards, either directly or through pools.

Decentralized finance (DeFi). ETH is widely used as collateral and as a trading pair in DeFi protocols. Exchanges such as Uniswap let users swap tokens from their wallets, and lending protocols such as Compound let users borrow against deposited crypto at any hour, without a bank. Many rely on price feeds from oracle networks such as Chainlink.

NFTs, gaming and digital ownership. An NFT is a unique token that records ownership of a digital item, such as artwork, collectibles or in-game assets, on the blockchain. NFTs surged in popularity in 2021. Decentraland, for example, tokenizes virtual land, avatars, wearables and buildings on Ethereum.

DAOs. Decentralized autonomous organizations use smart contracts to collect votes from members and carry out decisions automatically. A hypothetical investment DAO could pool members’ funds, invest only in proposals that win a majority vote, and distribute returns by code, with every transaction visible to all members.

Payments and speculation. Some merchants accept ETH, although fees and sales tax still apply. Most trading activity is speculative, from buy and hold to day trading, scalping and arbitrage between exchanges.

Ether vs. Bitcoin

How to Buy and Hold Ether

Ether is listed on most major cryptocurrency exchanges. The usual process:

1. Open an account with an exchange available in your country and complete identity verification.
2. Link a bank account or card and deposit funds.
3. Buy ETH, using either a market order (filled at the current price) or a limit order (filled only at your chosen price or better).
4. Decide where to keep it: in the exchange’s custody or in your own wallet.

Wallets and Private Keys

The ETH itself sits on the blockchain at an address, which works like an account number others send funds to. A wallet stores the private key that controls that address and signs transactions. Whoever has the key controls the funds, and a lost key cannot be reset by anyone. Most wallets back up keys with a recovery phrase of 12 or 24 words.

Leaving ETH on an exchange means trusting the exchange to safeguard it and process withdrawals. A self-custody wallet removes that dependency but makes you responsible for securing the recovery phrase. Hardware wallets keep the key offline, which reduces exposure to malware.

Ether ETFs: Futures and Spot

Investors who want ETH price exposure through a brokerage account can use exchange-traded funds.

Ether Futures ETFs

For years, the U.S. Securities and Exchange Commission (SEC) did not allow ETFs to hold crypto directly. Funds could, however, hold futures contracts, which are agreements to buy or sell an asset at a set price on a future date. Ether futures ETFs, including the VanEck Ethereum Strategy ETF (EFUT) and the ProShares Ether Strategy ETF (EETH), began trading in October 2023.

Advantages

• Exposure through an ordinary brokerage account
• No need to store or secure ETH yourself
• The fund is a regulated security

Disadvantages

• The fund tracks ETH through derivatives, so returns can differ from ETH’s own returns, partly because expiring contracts must be rolled into new ones
• Expense ratios can be higher than for simpler funds
• The underlying asset remains volatile and unregulated

Spot Ether ETFs

Fund managers including VanEck, Grayscale and Fidelity sought approval for ETFs that hold ether itself. After the SEC approved the first spot bitcoin ETFs in January 2024, it approved the exchange rule changes needed to list spot ether ETFs on May 23, 2024, and those funds began trading in July 2024. A spot fund holds ETH directly, so its performance tracks the ETH price more closely than a futures fund does, minus fees.

Reading the Market Data on This Page

Several of the widgets above measure trading activity, not the Ethereum network itself.

• Derivatives table: These are perpetual futures, contracts with no expiry that track the ETH price. Open interest is the value of contracts still open, a measure of outstanding positions. Funding is a periodic payment between long and short traders that keeps the contract price close to spot: a positive rate means longs pay shorts, a negative rate means shorts pay longs.
• RSI: The Relative Strength Index measures recent price momentum on a 0 to 100 scale over the stated timeframe. Readings near 70 or above are conventionally called overbought and near 30 or below oversold. It describes past price movement only.
• Prediction market odds: These are prices on a betting market for specific price outcomes by a set date. They reflect what traders on that platform are paying, not a forecast from fundamentals.

Is Ether a Good Investment?

It depends on your goals and risk tolerance. Ether’s value rests on demand for Ethereum block space, staking, its role in DeFi and investor sentiment, and all of those can change quickly. Like other cryptocurrencies, ETH has a history of large rallies followed by deep drawdowns, and any product built on it, including ETFs, carries the same price swings.

Its price also moves with regulatory news, broader risk appetite in financial markets, competition from other blockchains and events affecting the network or major applications built on it. Ether can be a reasonable holding for someone who believes in Ethereum’s long-term use, can tolerate large losses and invests only money they can afford to lose. Long-range price targets, such as forecasts for 2030, are speculation.