Ethereum serves several purposes on Ethereum blockchain.
Like other cryptocurrencies such as Bitcoin or Litecoin, Ether is used for making payments. It can be exchanged for services, goods, tokens or fiat currencies. But this is not the primary application of Ether.
Fuel for Ethereum blockchain
In order to execute smart contracts or decentralised applications on the Ethereum platform, the user must pay for the storage and computational power of the network. The execution fee is paid in Ether. Users buy gas for Ether to run the code. Gas measures how much computational work it takes to process a certain computer code. The more complex the code, the more gas is required. The transaction fee makes sure that the users create quality applications and do not spam the Ethereum blockchain with wasteful codes.
Ether as a reward
Ether is also used as a reward for miners who expend computational power to execute transactions, smart contracts and help secure the network. Miners collect all the transactions and make them into a list, then they apply a mathematical formula to keep an accurate record of transactions and in return receive Ether.
Ether is used to participate in ICOsICO is a fundraising mechanism for blockchain based startup companies. ICO stands for Initial Coin Offering. Companies and individuals can create their own token on Ethereum to fund their projects. A token is a digital coin that represents the value of the underlying project. Investors who are interested in their projects can buy their tokens with Ether.
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