Ethereum is more than just a cryptocurrency—it’s a decentralized computing platform powered by smart contracts and secured through blockchain technology. To truly grasp how Ethereum works, you need to understand its core components: accounts, transactions, gas, and gas limits. This guide breaks down these essential concepts in clear, SEO-optimized language to help both newcomers and intermediate users navigate the network with confidence.
What Are Ethereum Accounts?
At the foundation of Ethereum’s architecture are accounts, which represent entities capable of sending transactions on the network. Unlike Bitcoin, Ethereum distinguishes between two types of accounts:
- Externally Owned Accounts (EOA)
- Contract Accounts
These two account types form the backbone of all activity on the Ethereum blockchain.
Externally Owned Accounts (EOA)
An EOA is controlled by a private key and typically belongs to a human user. It has the following characteristics:
- Holds an ETH balance
- Can initiate transactions (send ETH or interact with smart contracts)
- Controlled solely by the owner’s private key
- Contains no associated code
You use an EOA when you send funds from your wallet or sign a transaction via MetaMask, Ledger, or any other Ethereum-compatible wallet.
Contract Accounts
Smart contracts live inside contract accounts, which are automated programs deployed on the blockchain. Their features include:
- Hold an ETH balance
- Contain executable code written in Solidity or another EVM-compatible language
- Are activated by incoming transactions or messages
- Can call other contracts and maintain persistent storage
When you participate in a DeFi protocol or mint an NFT, you're interacting with a contract account.
👉 Discover how smart contracts power decentralized finance today.
All actions on Ethereum—whether sending ETH or executing complex logic—are triggered by transactions originating from EOAs.
Transactions vs. Messages: What’s the Difference?
Ethereum Transactions
A transaction is a signed data packet sent from one account to another. It represents a state-changing operation on the blockchain. Every transaction includes:
- Recipient address
- Digital signature proving ownership
- Value (amount of ETH in wei)
- Optional data field (used for calling contract functions)
- Gas limit: Maximum computational steps allowed
- Gas price: How much the sender pays per unit of gas
Transactions originate only from externally owned accounts and are broadcast to the network for inclusion in a block.
For developers, tools like web3.eth.sendRawTransaction allow direct transaction submission.
Internal Messages (a.k.a. "Internal Transactions")
While not actual blockchain transactions, messages are virtual function calls between contract accounts. They occur when a contract executes a CALL or DELEGATECALL instruction.
A message contains:
- Sender (usually a contract)
- Recipient
- Optional data payload
- Gas limit for execution
These are often referred to as “internal transactions,” though they aren’t stored as separate entries on the chain. Instead, they’re part of the execution trace within a main transaction.
Despite common misuse, remember: only EOAs create real transactions; contracts generate internal messages during execution.
What Is Gas? The Fuel of Ethereum
Gas is the unit that measures computational effort on Ethereum. Since every node must replicate contract execution, resource-intensive operations must be priced to prevent spam and denial-of-service attacks.
Why Gas Exists
The Ethereum Virtual Machine (EVM) runs the same code across thousands of nodes. To ensure network stability:
- Each EVM operation consumes a predefined amount of gas
- Users pay for this gas in ETH
- Complex operations cost more gas than simple ones
This mechanism makes abuse expensive and incentivizes efficient coding practices.
Calculating Transaction Cost
Every transaction's fee is calculated using:
Transaction Fee = gasUsed × gasPriceWhere:
- gasUsed: Total gas consumed during execution (determined after completion)
- gasPrice: Amount of ETH (in wei) user offers per gas unit
For example:
- Standard ETH transfer: ~21,000 gas
- Gas price: 20 Gwei (0.00000002 ETH)
- Total fee: 21,000 × 0.00000002 = 0.00042 ETH
Token transfers typically require 50,000–100,000 gas, increasing fees accordingly.
Handling Unused Gas
If your transaction uses less gas than the specified gas limit, the unused portion is refunded automatically. However, if execution exceeds the limit, all changes are reverted—but you still pay for the gas used.
Think of gas limit as your fuel tank size and gas price as the cost per liter.
👉 Learn how to optimize gas usage in real-time transactions.
Understanding Block Gas Limit
The block gas limit defines the maximum total gas consumption allowed in a single block. It determines how many transactions can fit into a block based on their individual gas demands.
For instance:
- Block gas limit: 30 million
- Average transfer: 21,000 gas
- Max transfers per block: ~1,428
Miners choose which transactions to include, prioritizing those with higher gas prices.
Who Controls the Block Gas Limit?
Miners collectively influence the block gas limit through a voting mechanism. Each miner can adjust the limit by ±1/2024 (~0.0976%) per block relative to the previous one.
Historically, miners set conservative limits during spam attacks to maintain network health. However, failure to revert to dynamic adjustment post-attack has led to congestion during high-demand periods like ICOs or NFT mints.
Tools like ETH Gas Station provide real-time insights into current gas limits and network congestion.
FAQ: Common Questions About Ethereum Gas and Transactions
Q: Can I set gas price to zero?
A: Technically yes, but miners prioritize paid transactions. A zero-gas-price transaction may never be confirmed.
Q: What happens if I set too low a gas limit?
A: The transaction fails with “Out of Gas,” changes are reverted, and you lose the fee for used gas.
Q: Why do some transactions take so long?
A: High network demand causes backlogs. Transactions with low gas prices wait longer for miner inclusion.
Q: Is gas used the same as gas limit?
A: No. Gas limit is the maximum you allow; gas used is what’s actually consumed. Excess is refunded.
Q: How do I check current recommended gas prices?
A: Use tools like ETH Gas Station or browser wallets that suggest optimal fees based on network load.
Addressing Network Congestion ("DoS-Like" Conditions)
During peak usage—such as major token sales or NFT drops—the Ethereum network can become congested. This isn’t necessarily an attack but rather high demand exceeding capacity.
Malicious DoS Attacks
In 2016, attackers exploited low-cost operations that required heavy computation, slowing nodes. The community responded with hard forks and temporary gas limit reductions to mitigate impact.
Non-Malicious Congestion
Today’s delays often stem from legitimate activity overwhelming block space. When blocks are full, transactions queue up, leading to multi-hour confirmation times unless users pay premium fees.
How Miners Can Improve Network Performance
Miners play a crucial role in maintaining scalability. To restore automatic gas limit adjustments:
Geth Configuration (Recommended)
--gasprice 4000000000 --targetgaslimit 4712388Parity Configuration (Recommended)
--gas-floor-target 4712388 --gas-cap 9000000 --gasprice 4000000000These settings re-enable dynamic scaling based on demand while maintaining security margins.
Final Thoughts
Understanding Ethereum’s account model, transaction mechanics, and gas system empowers users to transact efficiently and securely. As Layer 2 solutions and upgrades like EIP-1559 evolve the ecosystem, foundational knowledge remains vital.
Whether you're building dApps, trading tokens, or simply sending ETH, mastering these concepts ensures smoother interactions with one of the world’s most powerful decentralized platforms.
👉 Stay ahead with real-time Ethereum analytics and wallet tools.