Ether and Ethereum: what is the difference?
Do you know the difference between Ether and Ethereum? Here's what sets them apart.
Ether and Ethereum are often used interchangeably. But although the two are connected, these terms actually refer to different things.
Let’s begin with a back-to-basics definition of Ethereum. This is an open-source system that utilises blockchain technology. Through this platform, it’s possible to build decentralised applications (also known as DApps) and write smart contracts – a type of code that allows agreements to be automatically executed.
Next up, we have Ether. This is the fuel that keeps the Ethereum network going. Whenever a transaction needs to be completed or a contract needs to be activated, these digital tokens are used to pay the miners who lend their computing power to make things happen. It also doubles up as a cryptocurrency that can be sent to family, friends and business associates.
You with us so far? Great! Now, let’s delve into Ether and Ethereum in a little more detail.
What is Ethereum?
The Ethereum network first launched in 2015, more than five years after Bitcoin made its debut. Although parallels are often drawn between these two blockchains – understandable given how they both boast a digital currency – they have been built with different purposes in mind. Ethereum allows developers to build applications that deliver compelling use cases for cryptocurrencies and distribute them without relying on a third party that would demand hefty levels of commission.
Examples of DApps include:
- Brave, a browser that blocks adverts and trackers to make pages load faster – and rewards users with tokens for viewing ads that respect their privacy
- Cent, a social network that effectively pays its users whenever they create new content
- CryptoKitties, a game where players can collect and trade collectible cats (and potentially make a lot of money if they have a rare character)
- Coinbase Wallet, an app that allows users to store their tokens safely in one place
Many DApps have the motivation of delivering a service without the need for a middleman, making things cheaper and more efficient. The Ethereum network’s lack of centralisation theoretically means there isn’t a single point of failure, as it is kept online by thousands of volunteers who allow their computers to be used as nodes.
As we mentioned earlier, smart contracts are a big part of the Ethereum network. Especially ambitious advocates claim that they have the potential to put lawyers out of jobs in the future – but it’s probably best to treat this with a healthy dose of scepticism. Smart contracts are effectively an agreement between two or more parties that has been translated into computer code and put on the blockchain. They are only activated when the pre-defined conditions in the contract have been met, and transactions are completed automatically thereafter.
Ethereum has pros and cons, as do most blockchain networks. One particular advantage is how the platform’s developers have set out a clear roadmap for its future development. Major companies are also beginning to embrace Ethereum, including the likes of Amazon and Microsoft.
However, challenges lie ahead. Scalability is a particular concern – and there are fears the platform doesn’t have the capacity to cater to growing levels of demand, meaning transactions are only completed slowly. Another hurdle lies in how Ethereum uses its own programming language – and as many developers haven’t coded with it before, there is a risk that they can create smart contracts which aren’t watertight.
What is Ether?
Next up, you have the Ether cryptocurrency. As we’ve established, its main utility is to help developers build decentralised applications (DApps) and users who want to activate smart contracts. However, it can be bought and sold on exchanges just like Bitcoin – and with a market capitalisation of $17.8bn, it’s the world’s second-largest cryptocurrency at the time of writing.
When fees are being paid on the Ethereum blockchain platform, their value is normally referred to as “gas”, which refers to the denomination of 0.000000001 ETH. Miners have the freedom to set how much gas they want in exchange for processing a transaction – and can refuse to help if a fee doesn’t meet their demands. In a way, you can compare this to taking a taxi: to get where you want to go you need to agree a fare with the driver.
Ether shouldn’t be confused with the other types of currencies that you may find on certain DApps, such as ERC-20 and ERC-721 tokens. These are often specially created for use within a certain application – serving as a currency for accessing a particular product or service, or denoting an ownership stake in a company or asset.
So there you have it: the differences between Ether and Ethereum set out once and for all. One is a digital currency, and the other is a blockchain platform. Next time you’re at a dinner party with some crypto nerds, you’ll be able to dazzle them with your in-depth knowledge.
FURTHER READING: How to use Ethereum. How to buy Ethereum
FURTHER READING: Bitcoin vs Ethereum