How Do Ethereum Transactions Work?
Ethereum was one of the first cryptocurrencies to appear, emerging six years after Bitcoin in July 2015. The Ethereum network expands the decentralised blockchain concept from Bitcoin, deploying smart contracts that help achieve Ethereum transaction verification and broaden the scope of the network.
This makes Ethereum different from many of its competitor networks and currencies. The Ethereum network was intended to become a general-purpose blockchain foundation for crypto-enabled app development. The smart contracts built into the Ethereum network allow it to be used for universal trading. These assets are not limited to the ETH token. They can include real estate, stocks and shares, fiat currencies or anything else of value. This is one of the key differences between Ethereum and other cryptocurrencies.
However, Ethereum still supports other forms of digital currency. As a result, it can still be used for speculative investment, storing currency, and, of course, completing digital transactions. So, what is an Ethereum transaction, how do these Ethereum transactions work, and how are they different from crypto transactions on other types of networks?
The Ethereum transaction process explained
How do you do an Ethereum transaction? Of course, you can't start making Ethereum transactions until you have Ethereum to trade or sell. You can buy ETH at any time, usually through crypto exchanges. On a cryptocurrency exchange, you can use your existing fiat currency funds — for example, Australian Dollars — and you can exchange this for an equivalent amount of ETH at the current rate.
Though there are several options available to you when you choose a cryptocurrency exchange, BTC Markets is one of the market leaders, thanks to a reliable payment system and easy-to-use interface. BTC Markets aims to create a digital platform for all customers to enjoy — including those based in Australia and elsewhere in the world. Many of our competitor exchanges bar customers from some regions and jurisdictions. Where possible, BTC Markets tries to be inclusive.
Making an Ethereum transaction from your wallet
You can send ETH that you own directly from your crypto wallet, just as you would with a standard digital wallet or an online banking platform. To do this, you will generally need the address of the recipient's wallet, as this is where you will be sending the funds.
Within your wallet, you will have an option named “Send Funds” or similar (Different crypto wallets include different transaction tools). Open the sending menu, add the recipient wallet address, and select how much ETH you want to send. This is a one-way transaction, useful if you purchase a product or need to send money to someone for another reason. It is also possible to view your past Ethereum transactions in the wallet.
You can also use the smart contract element of the Ethereum network to conduct a two-way transaction. This smart contract will automatically make and confirm the Ethereum transaction when certain criteria are met, such as when a specified amount of time has elapsed or when funds have been deposited into escrow. Ethereum verification is then achieved, and the transaction is written into the blockchain.
Making an Ethereum transaction with a retail store
Not all retail stores accept cryptocurrency, and an even smaller number accept Ethereum.
However, as the general understanding of cryptocurrency increases, this transaction type is becoming more frequent as Ethereum systems are utilised in more and more retail stores.
To make an Ethereum transaction with a retail store, you'll first need to check that the store can accept Ethereum. If so, you will see a Pay with Ethereum or Pay with Crypto button displayed on their site, or something similar. Select this button and either make the transaction using the Ethereum wallet address or follow the instructions on the retail store's site and complete using your wallet.
Making an Ethereum transaction using a peer-to-peer network
Peer-to-peer (P2P) trading is similar to trading on a standard cryptocurrency exchange. By paying a set fee, you gain the convenience of selling into an active market without needing to seek out a buyer. However, P2P exchanges differ in a fundamental way — rather than conducting an Ethereum transaction with the exchange itself, you are trading ETH with another user.
This means you can set your own price for trading in ETH or another cryptocurrency such as Bitcoin, XRP or Litecoin. The platform will use automated tools to find a user who is willing to meet the terms of your transaction.
P2P platforms also offers security when you make trades. Choose a P2P trading platform that uses an escrow system. The platform will hold both the buyer's and the seller's capital, releasing this simultaneously once the conditions of the trade are met. In other words, there is no danger of fraud or other problems with the transaction.
Buy and sell ETH, BTC or other cryptocurrencies on Australia's largest crypto exchange
To start making transactions with Ethereum, you'll first need to buy ETH and build your reserves. There are different ways to achieve this, but cryptocurrency exchanges remain some of the most possible, as they are so convenient and broadly available.
BTC markets are proud to be Australia's biggest crypto exchange. You know where to go when you want to grow your holdings in ETH or another form of crypto. Use BTC Markets to make, manage and check BTC transactions, or if you have questions about crypto in general. Sign up today, and let's get started.
Are Ethereum transactions free?
Ethereum is not free, unfortunately. Other networks such as Bitcoin offer free transactions, and BTC holders can trade their assets without paying any extra for the privilege. By paying an additional transaction fee, Bitcoin users can essentially have their trade prioritised, accelerating the pace of the transaction — but this is still a choice for the consumer, and they can opt for a free service if they prefer. Ethereum, on the other hand, does require a small transaction fee of ETH. This is used to support the transaction as it is written into the blockchain.
Are Ethereum transactions instant?
Unfortunately, Ethereum transactions are not instantaneous. After you have finalised the transaction and sent the funds, there will be a latency period while the transaction is verified on the network. This is due to the decentralised nature of Ethereum — transactions must be confirmed cryptographically in a process known as mining.
The mining process involves complex mathematical equations that must be solved using the computing power of devices connected to the Ethereum system. It takes a huge amount of computing power to complete these tasks, so there will be a delay while the transaction is verified. Your funds are protected throughout this process, and there is no danger of theft or loss.
How does Ethereum use the blockchain?
Ethereum uses its own blockchain for transactions. In this sense, it is essentially the same as Bitcoin, although the two blockchains are independent. However, they differ in the scope of their network capability. Ethereum works with smart contracts that trade a wide range of different assets on the blockchain, while Bitcoin is limited to BTC transactions.
Currently, Ethereum is still using the proof of work model to mine and verify transactions, although this may change to a more efficient, more eco-sustainable proof of stake model in the future.