But how exactly does an ETH transaction differ from a bank transfer? The two are similar. The end result is the transferred asset moving from one wallet address or bank account to another. However, while a bank transfer requires a payment service provider to act as the middleman, this is not the case with ETH transfers. This article explains how ETH transactions work, providing all the necessary knowledge for beginners to start transacting.
Sending and receiving Ethereum ETH essentials
- To send or receive ETH, you must first be able to store it. Thus, you need a wallet.
- When creating an ETH wallet, you create an account, which is defined by a private key and a public key.
- The address is derived from the public key, which functions like an international bank account number. This is the address to which you send ETH.
- At the current stage, ETH transactions require that a mining fee be paid. Fees are calculated in gas, an internal pricing unit, and denominated in ETH.
ETH Accounts, addresses and public/private keys
Just as you need a USD bank account in order to receive your salary in USD, you need an ETH wallet to receive and store your ETH. Thus, the first step towards your first ETH transaction is to create a cryptocurrency wallet capable of holding ETH.
When you create a new ETH wallet, what you actually do is you create a new ETH account. Each account is defined by two cryptographic keys – the public key and the private key. A recipient’s address, which is hashed from the public key and truncated to the last 20 bytes, is the piece of information required to send ETH to that specific recipient. To facilitate payments by allowing the sender to scan the recipient’s wallet address instead of having to type it in, certain wallets also provide addresses (or public keys) in QR-code format.
The private key, by contrast, serves a different purpose than that of a public key. A private key is used to generate signatures. These allow traders and investors to spend the ETH held at their wallet addresses. A single wallet may be associated with more than one private key, and may require more than one signature to initiate a transaction. Such wallets are called MultiSig wallets. As a security precaution, private keys should always be stored safely. Failing to do so could result in your assets being stolen or lost forever.
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Sending and receiving Ethereum ETH
Once you’ve got your ETH wallet and some ETH in it, you can make an ETH transfer. To do so, you will first need a recipient, to whose wallet address you will send your ETH.
When sending any cryptocurrency, you have to enter the recipient’s address. In order to avoid human error, avoid typing in the address manually. The two best options are to either copy-paste the wallet address, or to scan the recipient’s address in QR-code format.
Once you have entered the recipient’s address, the desired amount of ETH that you wish to dispatch and the amount of ETH you’re willing to pay for gas as a fee, carefully review all the details of your transaction. Once you have verified that the information which you have entered is correct, you can initiate the transaction.
As with any other crypto transfer, you will have to wait for your transaction to be added to the block. Depending on your wallet or the exchange where you store your crypto, the transaction might require several block confirmations before it is finalized and the recipient sees the funds in their wallet. At Bitstamp, 12 confirmations are required, which take about 3 minutes, given that the average block time revolves around 15 seconds.
Ethereum Transaction fees and gas
Transaction fees on the Ethereum blockchain work a bit differently than they do on Bitcoin. This is because they are not denominated in the same unit in which they are paid. While they are paid in ETH, they are calculated in gas, which is an internal pricing unit that decouples fees from the volatile price of ETH.
Wallets automatically provide an estimation of how much gas the transaction will require. Based on this estimation, the user then decides how much they are willing to pay for that gas. Imagine a transaction requires 38,000 gas and a user who is willing to pay 7 Gwei (an amount that equals 0.000000007 ETH) per one unit of gas. The fee for this transaction would amount to 0.000266 ETH which, as of writing this article, amounts to $ 0.03.
Thanks to gas, even if the price of ETH skyrockets, the fee will remain reasonably low, if not minute – and this is just one of the many perks of Ethereum’s native cryptocurrency. If you do not own any ETH yet and feel the urge to get some, then there is no better place to do so than on a crypto exchange. Aside from being the best place to get your hands on crypto, exchanges also provide you with a wallet service. Exchanges like Bitstamp are your best bet as they enable you to buy crypto with traditional money.