Ethereum uses its own system of units and denominations for ether, the native cryptocurrency of the Ethereum network. Just like traditional currencies are divided into smaller units like cents or paise, ether is also divided into smaller units to allow for transactions of any size.
The main unit on the Ethereum network is called ether, abbreviated as ETH. 1 ether is the base unit. The creation of ether tokens is incentivized through the proof-of-work mining process on Ethereum. The total supply of ether is not capped, however the rate of ether creation will reduce over time due to changes in the mining reward system.
The smallest denomination of ether is called wei. 1 ether is equal to 10^18 wei. This allows for divider transactions on the Ethereum blockchain.
Here is the wei to ether conversion:
1 wei = 10^-18 ETH 1 ETH = 10^18 wei
1,000 wei is equal to 1 kwei. Each unit is 1000 times the unit below it.
1 kwei = 10^15 wei 1,000 wei = 1 kwei
1,000 kwei equals 1 mwei.
1 mwei = 10^12 wei 1,000 kwei = 1 mwei
1,000 mwei is equal to 1 gwei. This is one of the most commonly used denomination after ether and wei. Gas fees on the ethereum network are generally specified in gwei.
1 gwei = 10^9 wei 1,000 mwei = 1 gwei
1,000 gwei is equal to 1 szabo.
1 szabo = 10^6 wei 1,000 gwei = 1 szabo
This unit is named after Nick Szabo, a computer scientist who was influential in the development of cryptocurrencies and blockchain technology.
1,000 szabo is equal to 1 finney.
1 finney = 10^3 wei 1,000 szabo = 1 finney
This unit is named after Hal Finney, a computer scientist and early bitcoin pioneer who received the first ever bitcoin transaction from Satoshi Nakamoto.
The Size Relation
To summarize, here is the size relation between the different denominations, from the largest to the smallest:
1 ether (ETH) = 10^3 finney = 10^6 szabo = 10^9 gwei = 10^12 mwei = 10^15 kwei = 10^18 wei
So in the ethereum system of units:
1000 wei = 1 kwei 1000 kwei = 1 mwei 1000 mwei = 1 gwei 1000 gwei = 1 szabo 1000 szabo = 1 finney 1000 finney = 1 ether
Decimal Places Allowed
Ether allows up to 18 decimal places in transactions. So technically you can send transactions containing fractional ether amounts as small as 0.000000000000000001 ether.
Most ethereum wallets will allow specifying transaction amounts in ether, gwei or wei. Hardware wallets like Ledger also support the same denominations.
This wide range of denominations allows the use of ether for both large and micro transactions on the ethereum blockchain.
Why Such Small Units Exist
The reason such small units like wei exist is because the cost of gas fees on ethereum can often be very small amounts like 0.000000001 ETH or even lower.
If the small units did not exist, it would be very difficult to pay the exact amount of gas fees required to get a transaction processed on ethereum. Units like wei allow you to pay the gas fee amount precisely.
There have been proposals in the Ethereum community to redenominate ether by removing some of the decimal places.
For instance shifting the decimal point of ether by a factor of 10^9 would essentially merge gwei into ether. This would set 1 ether equal to 1 billion gwei instead of the current rate of 1 ether = 1 billion * million gwei.
However, such efforts have not gained consensus yet because it requires all software on Ethereum to upgrade and could introduce bugs that destabilize the network. Removing decimal precision also reduces available granularity for gas fees.
As Ethereum continues to scale and gas fees reduce over time, redenomination may be reconsidered.
So in summary, ether has various denominations ranging from the very small units like wei to the base unit of ether. Each smaller unit is 10^3 times bigger than the unit before it. These varying units cater for different use cases and allow transactions of any size on ethereum blockchain.