Ethereum is a name that comes up often in discussions about digital currency. Ether is also a name you'll hear often, but many people are confused between the two because both names are sometimes used to refer to the cryptocurrency.
There are key differences between Ethereum and its cryptocurrency, ether (ETH). Ethereum is a blockchain and distributed platform designed for multiple uses; ether is the cryptocurrency used in the Ethereum platform. The differences are significant because understanding them can help you make investment and spending decisions.
Key Takeaways
- Ethereum is a blockchain and distributed platform that allows anyone to create anything that can use a blockchain.
- As of October 2022, Ether (ETH) is the world's second-largest cryptocurrency by market cap at over $160 billion.
- Ether is used to pay for on-chain Ethereum transactions but can be used as an investment, payment method, or for trading on exchanges.
What Is Ethereum?
Ethereum is a decentralized development platform that uses blockchain technology. It was created to allow others to build applications, cryptocurrencies, tokens, or other use cases that can benefit from distributed and secured databases.
You can tokenize nearly anything—information like passwords, personal data, finances, real estate, debt, and much more—into databases. When something is tokenized on a secured database like a blockchain, ownership can be secured and tracked through cryptographic techniques. A blockchain creates cryptographic snapshots of an entire database and includes them in each new block so that the blocks in the chain cannot be altered.
Ethereum operates like a distributed computer with the operating system running on machines (called nodes) worldwide. For this reason, it is called the Ethereum Virtual Machine because anything can be designed to run on it to take advantage of blockchain technology. The long-term goal is to connect everyone via this virtual machine and provide infrastructure to people everywhere. As a result, no single entity would have control over or access to anyone's personal data or other information, and it would therefore be much less vulnerable to hacks or shutdowns.
Ethereum is part of a movement toward a more decentralized internet and society that provides increased anonymity and security.
What Is Ether?
Ethereum requires resources to run. Because it is distributed, it is owned simultaneously by no one and everyone participating—but the resources it uses must be paid for. For instance, if a node is run in someone's home, that person is paying for electricity and components and doing the work to keep the node online. It makes sense to be able to pay them for the expenses, so Ethereum has a cryptocurrency designed for that purpose, ether (ETH).
Ether is commonly confused with the platform itself—when you hear someone talk about Ethereum's price, they are referring to ether (ETH), not Ethereum. Ether is the payment method in the Ethereum Virtual Machine (EVM), used to pay network participants for the expenses (and a little extra) they incur for securing the blockchain and validating transactions.
Ether Uses
Ether also has a market value—check any cryptocurrency exchange, and you'll find Ethereum listed just under Bitcoin, even though the listing is actually referring to ether (ETH). Consumers can use ether as payment for goods or services at participating merchants and retailers.
Investors and traders can use it in their quest to make money with money. For example, many investors use strategies similar to those they would use when buying and selling on the stock market, such as buying and holding; traders buy and sell based on price smaller price movements throughout a trading day.
Like all cryptocurrencies, ether is volatile and experiences wide price swings. Any product derived from it or which uses it is therefore susceptible to the same swings; they could even be amplified by the product. The potential for gains is high, as is the potential for losses.
How to Buy Ether
Although ether is the native cryptocurrency for Ethereum, it is available on all cryptocurrency exchanges. You can find it on popular exchanges like Coinbase, Kraken, Gemini, Binance.US, and KuCoin.
To buy ether, you only need to have a wallet compatible with your chosen exchange or use that exchange's wallet. For the most part, you link a bank account with your wallet and transfer funds to the exchange for the ether.
Should You Buy Ether?
To buy or not to buy crypto seems to be the question on many people's minds. The answer lies in understanding it and knowing how you're going to use it. For instance, if you want to shop and make purchases online with fewer entities knowing what you're doing, ether is an excellent way to do so. You only need to purchase the amount you think you'll need and spend it at an online retailer that accepts it. However, make sure you factor in the transaction fees Ethereum charges—you may pay a few dollars in fees for the convenience, plus sales tax.
If you're considering investing in ether, you may want to talk to a professional financial planner and discuss how ether can help you grow (or lose) wealth. Cryptocurrencies are volatile, so it helps to have a professional's assistance.
You can also invest in companies that are developing solutions using Ethereum. For example, many well-known tech giants have started using Ethereum to create applications for telecommunications, software development, energy, banking, retail, manufacturing, supply chain, and other industries.
Lastly, you can invest in trusts and funds like the Grayscale Ethereum Trust, which held 3.1 million ether as of its quarterly report in August 2022. This trust allows you to gain exposure to ether without the inherent risks of owning any.
Is Ether Still a Good Investment?
Whether ether is a good investment depends on your outlook. If you believe ether's price will go up, you can tolerate cryptocurrency risks, and you invest money you can afford to lose, ether might be a good investment. It's always best to talk to a financial advisor before buying cryptocurrency to ensure you can withstand the volatility.
Is Ether Better Than Bitcoin?
Ether (ETH) and bitcoin (BTC) are two cryptocurrencies whose blockchains are designed with very different purposes. Each has proven to be better at what it was designed for—ether, a way to fund on-chain transactions; bitcoin, a means to exchange value besides fiat currency. They have both caught the eyes of investors and traders, who aim to earn on the price changes both coins experience.
How Much Is Ether Worth?
On Oct. 4, 2022, ETH was $1,345.78.
Investing in cryptocurrencies and other Initial Coin Offerings (ICOs) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.
