How Does Ethereum Make Money

September 20, 2021
How Does Ethereum Make Money

If you’re new to cryptocurrency, you might have heard about Ethereum a lot!

You probably even bought some.

But deep down you’re now sure how it works and how does Ethereum makes money.

Don’t worry by the end of this guide you’ll know how.

What is Ethereum Really?

Ethereum is a public, open-source, blockchain-based distributed computing platform featuring smart contract (scripting) functionality.

It provides a decentralized Turing-complete virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes.

Are you lost yet? Don’t worry you’ll get it soon.

The Ethereum Platform rests on peer-to-peer network technology, and it employs its own currency, called Ether to facilitate the creation of “smart contracts” – computer coded programs that can automatically execute when certain conditions are met without any outside influence or third party needed.

These are also referred to as “distributed autonomous corporations”, with all terms being interchangeable.

The best way to describe Ethereum is probably ‘decentralized programmable web’.

It has a decentralized network with built in programming capabilities for building smart contracts.

It has a cryptographic token called ‘ether’, which is used to pay for transaction fees and services on the network, similar to how bitcoin works.

Ether serves as an incentive so that developers write quality decentralized applications (Dapps) .

You can run a search on [Ethereum] or [Ether] for much more information.

Ethereum was initially proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer. It was funded by an online crowdsale between July and August 2014. The system went live on 30 July 2015, with 11.9 million coins “premined” for the crowdsale participants worth about $1 billion at the time.

Vitalik Buterin

The smart contract feature was first described by computer scientist Nick Szabo in 1996, who envisioned a mechanism for creating digital markets and storing information about them in a blockchain database.

In 2013 Buterin proposed the concept of a new platform with a more general scripting language, and launched a crowdfunding campaign to try to fund development work on this system, called Ethereum.

How Does Ethereum Make Money

The Ethereum Platform rests on peer-to-peer network technology, and it employs its own crypto token called Ether to facilitate the creation of “smart contracts” – self executing code that automatically executes when specific conditions are met and triggers events and state changes in the shared system.

These contracts require a payment in the form of Gas to be made for every computational step they make .

Developers need to pay gas fee to deploy their smart contract on Ethereum platform; while miners who validate transactions and make the blockchain secure need to be incentivized.

To run a transaction on Ethereum network user has to pay gas which goes into rewarding miners and developers who maintain the network.

The more computation required for a task, the more money will have to be paid to compensate people who do it. This is how Ether makes money.

Ethereum also provides a cryptocurrency token called “ether”, which can only be transferred between accounts and used to compensate participant nodes for computations performed.

“Gas” is an internal pricing mechanism used by Ethereum to allocate resources on the network , so – just like we saw with Bitcoin, there’s something you need (i.e computational power), ‘pays’ for it (by earning some Ether) and in turn, the network is ‘charged’ for it (by spending Ether).

The more computational power you have in the network, in fact, the richer you can be.

And that’s how Ethereum makes money.

It will continue to make money in the future by selling Ether – its crypto token.

Why Ethereum Gas Fees is So High

The Ethereum network needs gas to complete transactions.

You must pay for each transaction you execute, whether it’s sending tokens, interacting with a contract, sending ETH, or doing any other action on the blockchain.

The payment is made in gas, and gas is always paid in ether..

You are paying for the mining(computational power) regardless of whether or not your transaction is approved.

Even if it fails, the miners or validators must confirm and execute your transaction, which requires computational power. You must pay for that processing, just as you would if a successful transaction occurred.

You can attempt to reduce gas expenses in your transaction settings.

Please keep in mind that if you choose the cheapest gas price, the transaction will take longer to complete.

To get an idea of how much it’ll cost, use the Ether transaction calculator here.

You can also check gas prices on a regular basis to see how they change here as well.

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