If You’ve Heard Of Ethereum, You Should Know What Ether Is
If you know what Ethereum is, then you should know what ether is as well. Ethereum targets functions that act as both some sort of decentralized web and something that resembles a decentralized web app store. Ethereum supports a new kind of app in the process. But where few actually own ethereum, the system that supports the functionality isn’t free. Instead the network itself needs “ether”.
Ether is a stand alone type of code that allows users to pay for computational resources required to run an app or run a program. Similar to bitcoin, ether is a digital asset. It’s kind of like a stock or security that is physically issued to a shareholder. And similar to cash, it does not need a third party to approve a transaction.
Basically, ether, instead of acting as a digital currency or payment, it seeks to give “fuel” to the decentralized applications to power the experience for users. One example here is a decentralized, online notepad. In order to post something, remove something, or make changes, users need to pay a transaction fee in ether in order to receive approval from a network to process the edit.
By doing this, ether has been known as “digital oil” and from this analogy, Ethereum transaction fees are calculated based on how much “fuel” the activity required. Each time there is an action, costs for the action collect based on how much fuel was needed and basically correlates to how much computational power was required. So if a transaction costs “1,000 fuel”, this ‘fuel’ is paid in ether.
As far as a system for economics is concerned, ether is more open-ended than anything else. Whereas bitcoin has a set market cap of 21 million bitcoins, ether doesn’t have a limit that is similar. For example, every 12 seconds, 5 ethers (ETH) are given to miners that verify transactions in the network. At most, 18,000,000 ether are mined each year.
Essentially, no one knows the total number of ether out there (yet). The pace of ether creation will most likely be less clear after 2017 as well. Ethereum plans to move to a new “proof-of-stake” algorithm. Most likely this will lead to a change in the rules for the creation of ether and therefor mining might end up decreasing as a result.