How Do Ethereum Transactions Work?

Want to learn more about crypto?
Explore more on our blog!
Learn more
Illustration: People, Ethereum, transactions
Table of Contents
Illustration: People, Ethereum, transactions

Key Takeaways:

  • Ethereum transactions involve transferring Ethereum-based assets, such as Ether, from one address to another on the Ethereum blockchain
  • Nonces play a crucial role in maintaining the order and uniqueness of transactions sent from a specific address in Ethereum.
  • The gas price in an Ethereum transaction indicates how much Ether a user is willing to pay for each unit of gas consumed during execution.

How do Ethereum Transactions Work?

Ethereum transactions work by allowing users to transfer Ethereum-based assets from one address to another on the Ethereum blockchain.

Navigating the world of Ethereum transactions can feel like a daunting task. This prominent blockchain network uses a complex system for verifying and recording transactions, unlike traditional methods you might be familiar with.

That’s why we’ve crafted this clear-cut guide to help you understand exactly how Ethereum transactions work, unpacking everything from transaction types to smart contracts involvement.

Dive in, there’s much to uncover!

What Are the Different Types of Transactions in Ethereum?

In Ethereum, there are several types of transactions that can be executed on the blockchain. The most common type is a simple value transfer, where Ether (ETH) is sent from one account to another. This transaction is similar to sending money from one bank account to another.

Ethereum supports smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. These contracts enable more complex transactions, such as decentralized exchanges, token sales, and crowdfunding campaigns.

Smart contract transactions can also include additional functions, such as updating data or retrieving information from the blockchain.

Another type of transaction in Ethereum is deploying a new smart contract to the blockchain. When a new contract is created, it is assigned a unique address on the blockchain and becomes a part of the decentralized network. Overall, the different types of transactions in Ethereum allow for a wide range of decentralized applications and interactions on the blockchain. 

How Does an Ethereum Transaction Work?

An Ethereum transaction begins with a user-initiated action. Suppose that you, as an account holder on the Ethereum blockchain, decide to transfer some Ether (ETH) or interact with a smart contract.

First, you’ll craft your transaction and sign it using your unique private key. The information included in this transaction includes specifics such as the receiver’s address, the amount of ETH being transferred, gas price, and any extra data.

Following this creation phase is the propagation stage where all participating nodes within the network receive your pending transaction. These transactions are then pooled together in what’s known as a ‘mempool.’ Miners select from this pool to include in their proposed block – additional incentives like higher gas prices can influence miners to prioritize certain transactions over others.

The chosen transactions form part of a new block which is then added to the public ledger upon validation by other nodes through Proof of Stake consensus mechanism. Henceforth, every copy of Ethereum’s blockchain will reflect this change made by your transaction – whether it was sending some ETH or triggering a token transfer via smart contracts executed on EVM.

What is a Nonce in Ethereum Transactions?

A nonce in Ethereum transactions refers to a unique number that serves as a transaction counter for each account. It helps to ensure the order and uniqueness of transactions sent from a specific address.

Nonces play a key role in maintaining the integrity and security of the Ethereum network by preventing replay attacks, where the same funds are used for multiple transactions. By incrementally updating with each new transaction, nonces help sequence the transactions in a specific order and verify their authenticity within blocks on the blockchain.

What is the Gas Limit in Ethereum Transactions?

The gas limit in Ethereum transactions refers to the maximum amount of work a validator is expected to perform for a particular transaction. It acts as a safeguard against resource-intensive or malicious transactions that could potentially disrupt the network.

The gas limit is typically set by the sender of the transaction and represents the maximum number of computational steps that can be executed during the transaction. Complex transactions, such as those involving smart contracts or intricate calculations, may require more gas than simple peer-to-peer transfers.

Miners charge a fee for their services in the form of gas fees, which are determined based on the amount of gas consumed during execution. Setting an appropriate gas limit ensures efficient and secure processing of Ethereum transactions while preventing abuse or excessive resource consumption.

What is the Gas Price in Ethereum Transactions?

The gas price in Ethereum transactions refers to the amount of Ethereum’s native cryptocurrency, called Ether (ETH), that a user is willing to pay for each unit of gas consumed during the execution of a transaction on the network.

Gas fees are determined by multiplying the gas price by the amount of gas required for a transaction. The higher the gas price, the more incentive miners have to prioritize and include the transaction in a block quickly.

Gas prices can fluctuate depending on factors such as network congestion and demand. Users may want to consider setting an appropriate gas price to ensure their transactions are processed efficiently while also managing costs effectively.

What is Ethereum?

Ethereum, at its core, is a cryptocurrency that employs cutting-edge blockchain technology. Essentially a decentralized platform for applications free from fraud, interference or downtime, Ethereum’s native currency Ether powers transactions within the network.

The unmistakably unique aspect of Ethereum rests in its capability to run smart contracts – self-executing contracts with coded instructions which execute when certain conditions are met.

This feature not only facilitates direct interaction between parties but also removes the need for intermediaries altogether, highlighting Ethereum’s transformative potential across different industries.

Being an open-source software platform based on blockchain technology allows developers to build and deploy their tailored decentralized applications (DApps). Lauded for revolutionizing transaction protocols by introducing programmable transactions known as smart contracts onto the world stage; Ethereum has distinguished itself with its versatility and adaptability.

With these unique attributes combined with secure cryptographic manners of managing online value exchanges; it stands toe-to-toe with Bitcoin while carving out a significant niche in the digital asset landscape.

How Are Smart Contracts Involved in Ethereum Transactions?

Smart contracts are an integral part of Ethereum transactions as they allow for the execution of predefined actions and automate interactions between parties without the need for intermediaries.

What is a Smart Contract in Ethereum?

Smart contracts in Ethereum are self-executing pieces of code that automatically execute transactions when specific conditions are met. They act as digital agreements, converting the terms and conditions of a contract into lines of code on the Ethereum blockchain.

Once deployed, smart contracts operate autonomously, executing themselves without requiring any intermediaries or centralized authorities to oversee them. These contracts can automate various processes and functions, from simple transfers of value to complex multi-step operations.

By utilizing smart contracts, Ethereum provides a decentralized platform for secure and efficient execution of agreements without relying on third parties or traditional legal systems.

What is a Contract Account in Ethereum?

contract account in Ethereum is an account that contains associated code which gets executed when transactions are made. Unlike externally owned accounts (EOAs) that are controlled by a private key and can send transactions, contract accounts are controlled by code executed by the Ethereum Virtual Machine (EVM).

Contract accounts, commonly known as smart contracts on the Ethereum blockchain, function as self-executing pieces of code that automatically execute transactions when certain conditions specified by involved parties are met.

These smart contracts define and enforce agreements or contracts on the Ethereum blockchain, eliminating the need for intermediaries and ensuring secure and decentralized transaction execution.

How Do External Transactions Interact With Smart Contracts?

External transactions interact with smart contracts by triggering the execution of specific functions or conditions within the contract. When an external transaction is sent to a smart contract, it includes all the necessary information and parameters required for the contract to perform its intended actions.

These transactions can involve transferring fundsupdating data in the contract’s storage, or executing predefined functions within the contract code. The smart contract then autonomously verifies and executes these transactions based on its predetermined logic and rules, without relying on any central authority.

This allows for secure and transparent interactions between parties without intermediaries, as the outcome of each transaction is determined solely by the code of the smart contract itself.

How Are Internal Transactions Different From External Transactions?

Internal transactions in Ethereum are transfers of ETH or other tokens that take place between smart contracts. These transactions occur on the blockchain and are executed through smart contracts acting as intermediaries.

External transactions involve actions initiated by externally-owned accounts, which are managed by humans instead of contracts. External transactions generally involve simple fund transfers from one externally-owned account to another.

Internal transactions can include more complex actions such as distributing tokens among participants or executing specific functions on existing smart contracts.

What Kind of Data Can Be Included in an Ethereum Transaction?

In an Ethereum transaction, various types of data can be included to provide additional information and instructions. This data can be in the form of messages or function calls that are essential for executing smart contracts.

If you want to interact with a decentralized application (DApp) on the Ethereum network, you can include specific parameters or arguments that the DApp requires to perform certain actions.

You can also attach notes or comments as part of the transaction data to provide context or communicate with other participants on the network. The flexibility of including different types of data within Ethereum transactions allows for a wide range of possibilities in terms of functionality and interactivity within the blockchain ecosystem.

How Do Ethereum Transactions Get Added to the Network?

To add Ethereum transactions to the network, the transaction is first broadcasted to the Ethereum network and added to a pool of other pending transactions.

How is a Transaction Broadcasted to the Ethereum Network?

A transaction in the Ethereum network is broadcasted to the entire Ethereum network to be processed. Here’s how the transaction broadcasting process works:

  1. Once a transaction is created, it needs to be propagated or broadcasted to the Ethereum network.
  2. The transaction can be broadcasted through various means such as APIs, wallets, and decentralized applications (dApps).
  3. When a transaction is broadcasted, it is sent to several nodes in the network.
  4. These nodes then propagate the transaction by sending it to other neighboring nodes they are connected with.
  5. The propagation of transactions ensures that the transaction request reaches all participants in the network.
  6. As the transaction spreads across the network, multiple nodes receive and validate the transaction.
  7. Nodes verify that the transaction meets certain criteria, such as having a valid signature and sufficient funds in the sender’s account.
  8. If the transaction passes validation checks, it is added to each node’s local mempool (a pool of pending transactions).
  9. The mempool contains all verified transactions waiting to be included in blocks by miners.
  10. Miners periodically select transactions from the mempool and include them in blocks they are trying to mine.
  11. Once a block is successfully mined and added to the blockchain, all transactions included in that block become part of the official record of transactions on Ethereum.

How Does a Transaction Get Included in a Block?

When a transaction is initiated on the Ethereum network, it goes through a process to get included in a block. Here are the steps involved:

  1. Broadcasting: The transaction is first broadcasted to the Ethereum network by the sender’s wallet address. This involves sending the signed transaction data to multiple nodes.
  2. Validation: Nodes on the network validate the transaction by checking its structure and ensuring that it meets all necessary requirements, such as having a valid signature and meeting the gas limit set by the sender.
  3. Propagation: Once validated, nodes propagate the transaction across the network, sharing it with other nodes and miners.
  4. Mining: Miners play a crucial role in selecting and including transactions in a block. They choose which transactions they want to include based on factors like gas price and available space in the block.
  5. Block Inclusion: When a miner creates a new block, they select transactions from their pool of unconfirmed transactions, prioritizing those with higher gas fees or better incentives. This selection process determines which transactions get included in the block.
  6. Consensus: Miners then compete to find a solution to a cryptographic puzzle, known as proof-of-work (PoW). The first miner to solve this puzzle gets their block added to the blockchain, including all selected transactions.
  7. Confirmation: Once included in a block, the transaction is considered confirmed on-chain. The more blocks are added after the one containing the transaction, the higher its confirmation level becomes.

What Role Do Nodes Play in Validating Ethereum Transactions?

Nodes validate Ethereum transactions. As essential participants in the Ethereum network, nodes are responsible for processing, verifying, and executing these transactions on the blockchain.

When a transaction is initiated, it needs to be considered valid before being added to the blockchain. This validation process involves mining, where a group of nodes verifies the transaction by solving complex mathematical problems.

Once validated by the nodes, the transaction is added to a block and becomes part of the permanent record on the blockchain. By fulfilling this important task, nodes contribute to maintaining the integrity and security of the Ethereum ecosystem as they ensure that every interaction is verified for all participating nodes to update their copy of the blockchain.

What is the Ethereum Virtual Machine (EVM) and Its Role in Transactions?

The Ethereum Virtual Machine (EVM) is a key component of the Ethereum blockchain, serving as a computation engine that handles the processing and execution of all transactions and smart contracts on the network.

It acts as a global distributed virtual machine, providing an environment for executing smart contracts across the Ethereum network. The EVM manages the state of the blockchain, ensuring correctness and expected behavior in transaction execution.

With its ability to determine the state of blocks on the Ethereum blockchain, developers can utilize it to build and deploy applications that interact with the Ethereum network. The EVM’s architecture and functionality also enable smart contract execution and decentralized application development on EVM-compatible blockchains and crypto projects.

How Does the Gas Limit Affect Ethereum Transactions?

The gas limit is an important part in Ethereum transactions. It refers to the maximum amount of gas that can be consumed during the execution of a transaction. Gas is used as a way to measure computation and storage on the Ethereum network, so the gas limit determines how complex or resource-intensive a transaction can be.

When you initiate a transaction on Ethereum, you specify the gas limit based on how much computation you expect the transaction to require. If your transaction uses more than the specified gas limit, it will fail and any changes made up until that point will be rolled back.

Set an appropriate gas limit for your transactions. Setting it too low may result in failed executions, while setting it too high could mean unnecessarily paying more fees for unused computation resources.

Confirming and Verifying Ethereum Transactions

Once a transaction is broadcasted to the Ethereum network, it goes through a process of validation, mining, and confirmation. This involves nodes verifying the transaction’s validity, miners incorporating it into a new block on the blockchain, and users being able to view and verify the transaction data using tools provided by Ethereum.

Transaction Confirmation Times

The time it takes for an Ethereum transaction to receive confirmations can vary depending on various factors. These factors include network congestion and the gas fees set by the user.

Network congestion occurs when there is a high volume of transactions being processed at any given time, leading to longer confirmation times. Higher gas fees incentivize miners to prioritize a transaction, resulting in faster confirmations.

On average, an Ethereum transaction can receive its first confirmation within a few minutes, multiple confirmations are typically required for a transaction to be considered fully verified and secure.

Viewing Transaction Data on the Blockchain

Viewing transaction data on the Ethereum blockchain can provide valuable insights into the history and types of transactions that have taken place. Here are some key points to consider:

  • Etherscan: Etherscan is a popular tool used to view transaction data on the Ethereum blockchain. It allows users to search for specific transactions, wallet addresses, or smart contracts and provides detailed information such as transaction hash, block number, gas used, and more.
  • Transaction History: By searching a specific wallet address or transaction hash on Etherscan, you can access a comprehensive history of all transactions associated with that address. This includes both incoming and outgoing transactions, along with details such as timestamps, amounts transferred, gas fees paid, and recipient addresses.
  • Transaction Types: Ethereum supports different types of transactions, including regular value transfers (Type 0), contract creations (Type 1), and contract calls (Type 2). When viewing transaction data on the blockchain, you can identify the type of each transaction to understand its purpose or function.
  • Smart Contract Interactions: If a transaction involves a smart contract on the Ethereum network, viewing its data can reveal details about the specific contract interaction. This includes information about the function called within the contract, input parameters provided by the sender, and any resulting changes in contract state.
  • Gas Usage: Transaction data also provides insights into the gas usage for each transaction. Gas represents computational resources required to execute transactions or smart contracts on Ethereum. By reviewing gas-related metrics like gas used or gas price paid for a particular transaction, you can assess its efficiency and cost-effectiveness.
  • Timestamps and Blocks: Each transaction recorded on the Ethereum blockchain is timestamped and assigned to a specific block. When viewing transaction data, you can determine when a particular transaction occurred and in which block it was included. This enables tracking of chronological order and helps understand the sequence of events on the blockchain.
  • Immutable DatThe nature of blockchain technology ensures that once a transaction is recorded, it becomes part of an immutable and transparent ledger. This means that transaction data cannot be altered or tampered with, providing a high level of trust and transparency.
  • Analyzing Trends: By analyzing transaction data collectively, researchers, developers, and analysts can gain broader insights into trends, patterns, and behaviors within the Ethereum network. This information can be used to improve user experiences, optimize smart contracts, or identify potential security vulnerabilities.
  • Privacy Considerations: While transaction data on Ethereum is publicly accessible, the identities behind wallet addresses are not always known. Wallet addresses do not directly reveal personal information. However, caution must be exercised when handling sensitive information as blockchain analysis techniques can sometimes de-anonymize users’ activities.

Tools for Verifying Transactions

To ensure the accuracy and validity of Ethereum transactions, there are several tools available that can be used to verify them. These tools allow users to track and monitor their transactions, view balances, and access wallet addresses. Here are some of the popular tools used for verifying Ethereum transactions:

  1. Etherscan: This is one of the most widely used block explorers for the Ethereum blockchain. It provides a user-friendly interface that allows users to search for specific transactions by inputting the transaction hash or wallet address. Etherscan also displays real-time transaction status, gas fees, and other essential information related to the transaction.
  2. MyEtherWallet (MEW): MEW is a free, open-source, client-side interface for creating and managing Ethereum wallets. It provides users with an easy-to-use platform for verifying transactions by allowing them to input their wallet address or transaction hash to view details about a specific transaction.
  3. MetaMask: MetaMask is a browser extension that serves as a digital wallet for Ethereum-based applications. It allows users to interact with decentralized applications (dApps) securely while also providing features like transaction history and balance tracking.
  4. Ethplorer: Ethplorer is another popular tool that allows users to explore and verify Ethereum transactions in real-time. It provides detailed information about token transfers, contract addresses, balances, and other relevant data related to Ethereum transactions.
  5. InfurInfura is an infrastructure provider that offers developers simplified access to the Ethereum network without having to maintain their own node servers. While primarily targeted towards developers, it can also be used by individuals interested in verifying their own transactions.


What is an EOA?

EOA stands for Externally Owned Account. It refers to a regular Ethereum account that is controlled by a private key. EOAs are used by individuals to send and receive ether.

What is a Contract Account?

A contract account, also known as a smart contract, is an Ethereum account that contains code and can store and transfer value. Contract accounts are controlled by the code stored within them and can execute predefined functions.

How Do Ethereum Transactions Work?

When a user wishes to perform a transaction on Ethereum, they create a transaction object containing the necessary details such as the recipient’s address, the amount of ether to be transferred, and optional data. The user then signs the transaction using their private key and broadcasts it to the Ethereum network. Nodes on the network validate the transaction and propagate it to other nodes. Once a transaction is included in a block, it is considered final and the ether is transferred to the recipient’s account.

What is the “Nonce” in Ethereum Transactions?

The “nonce” is a sequence number that is used to prevent replay attacks. Each EOA has a nonce associated with it, and it must be incremented for each new transaction sent by that account. This ensures that each transaction is unique and can only be executed once.

What is the Maximum Number of Transactions per Second That Ethereum Can Handle?

The Ethereum network can currently handle around 15-20 transactions per second. However, this number can vary depending on the network congestion and the complexity of the transactions being performed.

What Are Internal Transactions?

Internal transactions are transactions that are triggered by the execution of a smart contract. These transactions are not visible on the Ethereum blockchain, but they can still transfer value or trigger further actions within a smart contract.

How is Transaction Data Stored in Ethereum?

Transaction data in Ethereum is stored as part of the block. Each block contains a data structure called the transaction trie, which holds the details of each transaction included in that block.

What is the Process of Contract Deployment?

Contract deployment in Ethereum involves sending a transaction to the network with a special data field that contains the code of the smart contract. Miners validate the transaction and include it in a block, effectively deploying the smart contract to the Ethereum network.

How Do I Send Ether Transactions?

To send ether transactions, you need an EOA and the recipient’s Ethereum address. Using a wallet or a client like MetaMask, you can create a transaction object specifying the recipient’s address and the amount of ether to be sent. You then sign the transaction with your private key and broadcast it to the Ethereum network.

Conclusion: ETH Transactions Offer Potential

From regular transactions to smart contracts, each transaction involves a sender, recipient, and specified change.

With the Ethereum blockchain recording every transaction and smart contract call, transparency and security are at the forefront of this innovative technology. So whether you’re transferring Ether or interacting with a dApp, knowing the ins and outs of Ethereum transactions empowers you to participate in this exciting digital ecosystem.



The information provided on this blog is for general informational and educational purposes only. It is not intended as financial, legal, or investment advice. Cryptocurrency investments are volatile and high risk in nature; it is possible to lose your entire investment. We are not financial advisors, nor do we purport to be.

While we strive to provide accurate and up-to-date information, we cannot guarantee the accuracy, completeness, or applicability of any information provided. The views and opinions expressed on this blog are solely those of the authors and should not be construed as professional advice. We do not endorse or guarantee the performance of any cryptocurrencies, projects, or companies mentioned herein.

Readers are encouraged to conduct their own research and consult with a professional financial and legal advisor before making any investment decisions. The owner of this website and the authors of its content will not be liable for any losses, injuries, or damages from the display or use of this information. Use of this information is at your own risk.

About the Author:
Alex Sterling stands at the forefront of blockchain innovation, offering a technical perspective rooted in a Computer Science background. Specializing in decentralized systems, Alex's articles dissect blockchain technologies and crypto market trends, making intricate details comprehensible for readers. They are deeply involved in blockchain project development, frequently sharing their technical expertise at tech conferences. Alex's work aims to educate and inspire readers about the transformative potential of blockchain and cryptocurrency.