How do Ethereum Transactions Work?
Ethereum transactions are the backbone of its decentralized platform, enabling users to interact with smart contracts and decentralized applications (dApps). Unlike Bitcoin, which primarily functions as a digital currency, Ethereum provides a programmable blockchain.
1. Initiation
To initiate a transaction, a user creates a digital wallet and receives an Ethereum address. The sender specifies an amount of Ether (ETH) to transfer and may include additional data for dApps or smart contracts.
2. Gas Fees
Each Ethereum transaction requires a gas fee, which compensates miners for processing transactions and executing smart contracts. Users must set a gas limit and gas price to determine the transaction's cost and speed.
3. Broadcasting the Transaction
Once the transaction is created and the gas fee is defined, it is broadcast to the Ethereum network, where miners validate it. The transaction is placed in the mempool until picked up by a miner.
4. Miners and Block Confirmation
Miners compete to include transactions in the next block. Upon successfully mining a block, the transaction is confirmed, and its effects (like ETH transfer or smart contract execution) are executed.
5. Finality
After enough confirmations, the transaction is considered final, ensuring that it cannot be altered or reversed. This aspect highlights the security of the Ethereum blockchain.