Ethereum is more than just a cryptocurrency platform—it's a decentralized state machine driven by transactions. Every action on the network, from sending ETH to minting NFTs, revolves around transactions, which alter the global state of the blockchain. For developers working with Solidity, understanding how transactions, transfers, and contract interactions function at a foundational level is essential.
This guide dives deep into the anatomy of Ethereum transactions, explores the differences between ETH and ERC20 token transfers, and explains how smart contracts are deployed and interacted with—all from a developer’s perspective.
What Is an Ethereum Transaction?
At its core, an Ethereum transaction is a signed data package sent from one account to another. It can transfer value (ETH), execute smart contract code, or deploy new contracts. The network processes these transactions to update the blockchain’s state.
Each transaction contains several critical fields:
- Recipient: The destination address—either an external account (EOA) or a smart contract.
- Signature: A cryptographic signature derived from the sender’s private key, ensuring authenticity and preventing tampering.
- Value: The amount of ETH (in wei) being transferred.
- Data (payload): Optional binary data used when interacting with smart contracts.
- Gas Limit: The maximum amount of gas the sender is willing to consume for execution.
- Max Priority Fee per Gas: The tip offered to miners (or validators in PoS) for faster inclusion.
- Max Fee per Gas: The total maximum fee per gas unit, including base fee and priority fee.
- Nonce: A sequential number that ensures transaction order and prevents replay attacks.
⚠️ Note: Wallets like MetaMask allow users to adjust gas fees and nonce manually. However, altering the nonce should be done carefully—only to replace pending transactions.
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Types of Ethereum Transactions
There are three primary types of transactions on Ethereum:
1. Regular Transactions
Transfers of ETH between two external accounts (e.g., Alice sends 0.5 ETH to Bob). These do not involve contract execution.
2. Contract Execution
A transaction sent to a smart contract address, triggering a function call via the data field (e.g., minting an NFT or swapping tokens).
3. Contract Deployment
A special transaction where the recipient field is empty. The data field contains initialization code that deploys a new contract onto the blockchain.
While both external and contract accounts can hold funds, only external accounts can initiate transactions. Contract accounts respond to incoming transactions by executing predefined logic.
Internal operations triggered by a contract—such as sending tokens to another address—are known as internal transactions. These aren't standalone; they're part of the trace of an original external transaction.
Understanding Value Transfers: ETH vs ERC20 Tokens
Although wallet interfaces often make ETH and token transfers look identical, their underlying mechanisms differ significantly.
ETH Transfers: Simple and Native
An ETH transfer is simply a transaction with:
- A recipient address
- A non-zero
value - An empty
datafield
When sending ETH to a contract, special rules apply:
- If the contract has a
receive()function, it executes. - If not, but there’s a
payable fallback()function, that runs instead. - If neither exists, the transfer fails.
In contrast, sending ETH to any external account always succeeds, even if the address has never been used before.
ERC20 Token Transfers: Contract-Based Operations
ERC20 transfers are not native to Ethereum—they rely entirely on smart contracts.
To transfer tokens:
- Set
recipientto the token contract address - Set
valueto0(no ETH sent) - Encode the actual transfer details (
_to,_value) into thedatafield using thetransfer(address,uint256)function
Example Solidity interface:
function transfer(address _to, uint256 _value) public returns (bool success);The contract maintains balances via a mapping(address => uint256) and updates them during transfers. This flexibility allows innovative designs—like deflationary tokens that burn a percentage on each transfer.
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How the Data Field Enables Smart Contract Interaction
The data field is central to interacting with smart contracts. It encodes function calls and parameters using the Ethereum ABI (Application Binary Interface).
Structure of the Data Field
- First 4 bytes: Function selector—the first four bytes of the Keccak-256 hash of the function signature (e.g.,
mint(address,uint256)→hash("mint(address,uint256)")) - Remaining bytes: Encoded function arguments in ABI format
For example, calling mint(0x..., 100) generates input data starting with a specific 4-byte prefix followed by encoded address and integer values.
Wallets like MetaMask may recognize common function selectors and display human-readable labels (e.g., “Mint NFT”). Unknown functions show as “Contract Interaction.”
You can manually edit this data—but doing so risks calling non-existent functions, leading to failed executions.
How Contracts Execute: Behind the Scenes
Unlike traditional programming languages like C, where functions are called via memory addresses, Ethereum uses function selectors based on hashes.
When a transaction targets a contract:
- The EVM reads the first 4 bytes of the
datafield. - It compares this selector against all exported functions in the contract.
- If matched, execution begins at that function; otherwise, it falls back to
fallback()if defined.
Interestingly, every deployed contract has an auto-generated entry point—often labeled main() in decompiled bytecode—that handles this routing logic. This function doesn’t exist in your Solidity source but is added during compilation.
Using tools like ethervm.io/decompile, you can analyze deployed bytecode and observe this dispatch mechanism in action.
Contract Deployment: From Code to Blockchain
Deploying a contract involves sending a transaction with no recipient and initialization code in the data field.
But here’s a key insight: the deployment code is not the final contract code.
The initial bytecode includes:
- Constructor logic
- Initialization routines
- A mechanism to return the runtime bytecode
Once executed, the EVM stores only the returned portion—the actual operational code—on-chain. Temporary components like constructors are discarded after deployment.
This is why you’ll often see deployment bytecode starting with 60806040, then repeating later—the second instance marks the beginning of the persistent runtime code.
You can verify this process by inspecting creation transactions on Etherscan, where the "Input Data" corresponds to the full deployment payload.
Frequently Asked Questions (FAQ)
Q: Can I cancel a pending Ethereum transaction?
No—you cannot cancel a broadcasted transaction. However, you can replace it by sending another with the same nonce but higher gas fees (typically 10%+ more priority fee).
Q: What happens if I send ETH to a contract without a payable fallback?
The transaction will fail and revert, returning your ETH (minus gas costs).
Q: Why does changing the data field affect transaction behavior?
Because the data field determines which function is called and what arguments are passed—altering it changes the intended operation entirely.
Q: Is every part of my Solidity code stored on-chain?
No. Only the runtime bytecode is stored permanently. Constructors and functions only used during deployment are removed after initialization.
Q: Can contracts initiate transactions on their own?
No. Contracts can trigger internal actions (internal transactions), but they cannot independently create top-level transactions. An external account must always trigger execution.
Q: How do wallets recognize which function I'm calling?
Wallets maintain databases of common function selectors. If your function matches a known hash (like transfer(address,uint256)), it displays a readable label.
Final Thoughts
Mastering Ethereum transactions is fundamental for any Solidity developer. From understanding gas mechanics to decoding ABI payloads, each layer reveals deeper insights into how decentralized applications operate.
Whether you're building DeFi protocols, NFT mints, or custom token systems, knowing how data flows through transactions empowers you to write safer, more efficient contracts.
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