To be fair, the entire concept of Ethereum vs. Ether can get very confusing very fast.
As was mentioned in the opening module – when we hear the word “Ethereum” we typically associate it with a cryptocurrency – like Bitcoin. While that definition isn’t entirely incorrect – it’s important to understand that Ethereum is much more than just a simple cryptocurrency, it’s actually an open software platform built on blockchain technology that enables developers to build and deploy decentralized applications using smart contracts.
However, the cryptocurrency used to power the Ethereum network is called Ether. This is what is sold on many exchanges, like Coinbase.
How It All Works
The Ethereum blockchain functions similarly to the Bitcoin blockchain: a network of computers run software that validates transactions through majority consensus called mining. Mining is powered by people running these computers who validate the transactions.
Bitcoin miners are compensated for their resources by being paid in Bitcoin.
Ethereum miners are compensated in Ether.
Ether = Programmable Money
Calling Ether a digital currency can be a little misleading – since it functions more like a digital commodity.
Just like you need gasoline to fuel your vehicle, you need Ether to run applications on the Ethereum blockchain. This Ether is what powers the smart contracts (like the example video setting up rent payments) as well as running DApps, generating tokens during ICOs, facilitating transactions on the Ethereum blockchain, and yes – making payments. That’s why Ethereum (or Ether) is also called programmable money.
Ether As A Commodity vs. A Currency
The reason why Ether is more of a commodity than a currency is that the same underlying principles of supply/demand economics that apply to commodities like oil and gas also apply to Ether. Oil is valuable because it powers many of the things we use in our everyday life – it heats our homes and powers our engines.
The more people begin utilizing Ethereum based applications, the higher the demand will be for Ether which will increase its value.
Since Ether is useful, exchangeable and transferable – certain merchants are also starting to accept it as a currency.
Putting It All Together
- Ethereum is the platform and Ether is the fuel that powers the platform
- Ether is bought & sold – not Ethereum.
- Ethererum has various applications.
- Ether has only one application = enable operations on the Ethereum blockchain.