Learning Objectives – after this chapter you will be able to:
- Explain what Ether (ETH) is and why the network needs it.
- Convert between wei, gwei and ether.
- Describe how new ETH is issued and how fee burning affects supply.
ETHER
- Ether, with the ticker symbol ETH, is the native cryptocurrency of the Ethereum platform.
- It is used to pay transaction fees and computational services on the Ethereum network – it is the “fuel” that pays for gas (Chapter 12).
- ETH is widely traded on many cryptocurrency exchanges and can be transferred directly between accounts.
- Ether provides the economic incentive that keeps the network healthy: validators earn ETH for honest work, and users must spend ETH for computation, which discourages spam and wasteful code.
- Wei is the smallest denomination of Ether: 1 ETH = 1018 wei.
Uses of ETH
| Paying for gas | Every transaction and contract execution is paid for in ETH. |
| Staking | Validators lock ETH (minimum 32 ETH per validator) to secure the network under Proof-of-Stake. |
| Collateral | ETH is used as collateral in DeFi lending and to back some stablecoins. |
| Payments & value transfer | ETH can be sent peer-to-peer like digital money. |
| Unit of account | NFTs and other on-chain assets are often priced in ETH. |
Denominations of Ether
| Unit | Alternative name | Value in wei | Value in ETH | Common use |
|---|---|---|---|---|
| wei | – | 1 | 10-18 | Smallest unit; used inside smart contracts |
| kwei | babbage | 103 | 10-15 | Rarely used |
| mwei | lovelace | 106 | 10-12 | Rarely used |
| gwei | shannon | 109 | 10-9 | Gas prices |
| microether | szabo | 1012 | 10-6 | Rarely used |
| milliether | finney | 1015 | 10-3 | Rarely used |
| ether | – | 1018 | 1 | Balances and transfers |
Conversion examples
- 0.5 ETH = 0.5 × 1018 = 500,000,000,000,000,000 wei
- 20 gwei = 20 × 109 = 20,000,000,000 wei = 0.00000002 ETH
- 1 ETH = 1,000,000,000 gwei (109 gwei)
Solidity stores amounts as whole numbers of wei (it has no decimals), and offers the suffixes
wei, gwei and ether, e.g. require(msg.value == 1 ether);Supply, Issuance and Burning
- Unlike Bitcoin, ETH has no fixed maximum supply.
- Issuance: new ETH is created as rewards for validators who propose blocks and attest correctly.
- Burning: since the London upgrade (EIP-1559, August 2021), the base fee of every transaction is permanently destroyed.
- When network usage is high, more ETH can be burned than is issued, making the total supply fall (net deflationary); when usage is low, supply grows slowly.
Key Takeaways
- ETH pays for gas, secures the network through staking and serves as collateral and money.
- 1 ETH = 109 gwei = 1018 wei; gas prices are quoted in gwei.
- ETH supply = issuance to validators − base fees burned.
Question / Answer (15 questions)
Answer : Ether is the native cryptocurrency of the Ethereum network. It is used to pay transaction fees (gas), to stake for securing the network, as collateral in DeFi and as a means of peer-to-peer payment.
Answer : Computation and storage on Ethereum consume shared resources. Charging fees in ETH prevents spam and infinite loops, while rewarding validators in ETH gives them an economic incentive to secure the network honestly.
Answer : The smallest unit is the wei. One ETH equals 10^18 wei.
Answer : One gwei equals 10^9 wei (one-billionth of an ETH). Gas prices are usually small fractions of an ETH, so quoting them in gwei gives convenient numbers such as 20 gwei.
Answer : 0.25 × 10^18 = 250,000,000,000,000,000 wei (2.5 × 10^17 wei).
Answer : 50 gwei = 50 × 10^9 wei = 5 × 10^10 wei = 0.00000005 ETH (5 × 10^-8 ETH).
Answer : The EVM and Solidity work with integers and do not support fractional (floating-point) numbers. Using wei as an integer unit avoids rounding errors.
Answer : gwei is also called shannon (10^9 wei); szabo equals microether (10^12 wei); finney equals milliether (10^15 wei).
Answer : No. Bitcoin is capped at 21 million coins, but ETH has no fixed cap. Its supply depends on issuance to validators minus the base fees that are burned.
Answer : Since EIP-1559 (London upgrade, August 2021), the base fee portion of every transaction fee is permanently destroyed rather than paid to anyone, reducing the ETH supply.
Answer : When network activity is high enough that the amount of ETH burned through base fees exceeds the amount of new ETH issued to validators, the total supply decreases.
Answer : A minimum of 32 ETH must be staked to activate a validator on Ethereum’s Proof-of-Stake network.
Answer : New ETH is issued as rewards to validators for proposing blocks, making correct attestations and participating in sync committees. There is no mining reward after The Merge.
Answer : require(msg.value == 1 ether); – the ether suffix converts 1 to 10^18 wei, and msg.value is the amount sent in wei.
Answer : Staking to run validators, collateral for DeFi loans or stablecoins, and peer-to-peer payments or pricing of NFTs and other on-chain assets.
MCQ Test : Check Your Understanding (5 questions)
Select an option and press Check Answer, or answer all questions and press Submit Test to see your score. Each answer comes with an explanation.
Bibliography/References
The notes, questions and MCQs on this page are original explanations written for this course. The works listed below were consulted and are cited for attribution and further reading. Product names, logos and trademarks belong to their respective owners. Short quotations, where used, are marked and attributed.
- ethereum.org. (n.d.). Intro to Ether. Ethereum Developer Documentation. https://ethereum.org/en/developers/docs/intro-to-ether/
- Ethereum Improvement Proposals. (2019). EIP-1559: Fee market change for ETH 1.0 chain. https://eips.ethereum.org/EIPS/eip-1559
- ethereum.org. (n.d.). Ethereum staking. https://ethereum.org/en/staking/
- Solidity Team. (n.d.). Solidity Documentation. https://docs.soliditylang.org/
- Buterin, V. (2013). Ethereum Whitepaper: A Next-Generation Smart Contract and Decentralized Application Platform. ethereum.org. https://ethereum.org/en/whitepaper/
- Antonopoulos, A. M., & Wood, G. (2018). Mastering Ethereum: Building Smart Contracts and DApps. O’Reilly Media.