Understanding Ethereum Smart Contracts: Transaction Structure, From, To, and Gas

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Ethereum has revolutionized the blockchain landscape by introducing smart contracts—self-executing agreements that run exactly as programmed without downtime, censorship, or third-party interference. Unlike Bitcoin, which primarily serves as digital money, Ethereum functions as a decentralized platform for building and running applications through code. This article dives deep into the structure of Ethereum transactions, how smart contracts work, and the role of gas in execution—offering a clear, SEO-optimized guide for developers and enthusiasts alike.

What Is Blockchain?

At its core, blockchain technology is built around the concept of a distributed ledger—a shared database maintained by multiple participants across a network. This ledger records every transaction that occurs within the system, and each participant holds a copy.

Rather than relying on trust between parties, blockchain uses cryptographic verification and economic incentives to ensure honesty. In simple terms: following the rules is more profitable than cheating. This eliminates the need for intermediaries like banks or notaries, enabling peer-to-peer value transfer with transparency and security.

👉 Discover how decentralized networks are reshaping digital trust today.

The Power of Smart Contracts

One of Ethereum’s most transformative innovations is the smart contract. Despite the name, these aren't legal documents nor "intelligent" in the AI sense. Instead, they are programs stored on the blockchain that automatically execute when predefined conditions are met.

Think of a smart contract as a special type of account on the Ethereum network. While regular user accounts have an address and balance, smart contract accounts include additional components:

The state reflects the live data inside the contract—similar to instance variables in object-oriented programming. Once deployed, this state persists permanently on the blockchain and can be updated only through valid function calls.

For example, consider a simple counter contract:

contract Counter {
    uint counter;
    
    function Counter() public {
        counter = 0;
    }
    
    function count() public {
        counter = counter + 1;
    }
}

Each time someone calls count(), the global blockchain state updates to reflect the new value. This change is visible to everyone—transparent, immutable, and trustless.

Ethereum vs Bitcoin: Key Differences in Transactions

While both Ethereum and Bitcoin rely on transaction-based models, their capabilities differ significantly.

Bitcoin Transactions

Bitcoin transactions are straightforward: they move value from one address to another. At a basic level, they consist of:

This simplicity makes Bitcoin ideal for peer-to-peer payments and store-of-value use cases.

Ethereum Transactions

Ethereum expands this model with a DATA field, enabling three types of transactions:

  1. Value Transfer – Similar to Bitcoin; sends ETH between addresses.
  2. Contract Creation – Deploys new smart contracts to the network.
  3. Contract Function Call – Interacts with existing contracts.

This flexibility turns Ethereum into a programmable blockchain—often called the "world computer"—where developers can build decentralized applications (dApps).

Anatomy of an Ethereum Transaction

Let’s break down each transaction type using simplified JSON representations.

1. Value Transfer

{
  "to": "0x687422eEA2cB73B5d3e242bA5456b782919AFc85",
  "value": 0.0005,
  "data": "0x"
}

This sends 0.0005 ETH to the specified address. The data field may contain optional messages or remain empty.

2. Smart Contract Deployment

{
  "to": "",
  "value": 0.0,
  "data": "0x6060604052341561000c57fe5b60405160c0..."
}

An empty to field signals contract creation. The data contains compiled bytecode—the machine-readable version of your Solidity code.

3. Calling a Contract Function

{
  "to": "0x687422eEA2cB73B5d3e242bA5456b782919AFc85",
  "value": 0.0,
  "data": "0x6060604052341561000c57fe5b..."
}

Here, data encodes the function name and parameters using ABI (Application Binary Interface), directing the EVM (Ethereum Virtual Machine) on what action to perform.

👉 Learn how to interact with smart contracts securely and efficiently.

How Are Smart Contracts Executed?

Calling a function in a smart contract mirrors traditional programming—but with critical differences.

In standard code:

result = myObject.myFunction(param);

On Ethereum:

Once miners include it in a block, the EVM executes the code across all nodes, updating the global state accordingly. If the function modifies data (e.g., increases a balance), that change becomes permanent and visible to all.

Understanding Gas: The Fuel of Ethereum

Every operation on Ethereum costs gas, a unit measuring computational effort. Whether storing data or performing calculations, users must pay gas fees denominated in gwei (a fraction of ETH).

Why does gas exist?

Gas price is set by supply and demand. During high congestion, users bid higher prices to prioritize their transactions.

You can think of gas like fuel for a car: more complex journeys require more fuel. Similarly, intricate smart contracts demand more gas—and thus cost more to run.

Building Tokens on Ethereum

One of the most popular uses of smart contracts is creating tokens—digital assets representing value, ownership, or utility.

Most tokens on Ethereum follow standards like ERC-20, which define functions for transferring balances, checking supply, and approving spending.

Here’s a minimal token implementation in Solidity:

contract MyToken {
    mapping (address => uint256) public balances;

    function MyToken(uint256 initialSupply) {
        balances[msg.sender] = initialSupply;
    }

    function transfer(address to, uint256 amount) public {
        require(balances[msg.sender] >= amount);
        balances[msg.sender] -= amount;
        balances[to] += amount;
    }
}

This contract tracks balances via a mapping and allows transfers between addresses—forming the foundation of countless dApps and fundraising mechanisms like ICOs.

Frequently Asked Questions

What is a smart contract?

A smart contract is self-executing code deployed on the Ethereum blockchain that runs automatically when conditions are met. It cannot be altered once live and operates transparently across all network nodes.

Can I modify a smart contract after deployment?

No—smart contracts are immutable by design. However, developers can deploy upgradeable patterns using proxy contracts, though this introduces additional complexity and risk.

Why do Ethereum transactions need gas?

Gas prevents abuse of network resources and ensures fair compensation for validators. Each computational step consumes gas, making inefficient code expensive to run.

What happens if I run out of gas during execution?

The transaction fails, changes are reverted, but you still pay for the gas used up to that point—an incentive to write efficient code.

Are all tokens built on Ethereum?

While many tokens originate on Ethereum due to its robust developer ecosystem, other blockchains like Binance Smart Chain and Solana also support token creation through similar mechanisms.

Is coding knowledge required to interact with smart contracts?

Yes, deploying or writing contracts requires proficiency in languages like Solidity. However, end-users can interact with dApps via wallets like MetaMask without coding skills.

Final Thoughts: The Future of Programmable Money

Smart contracts have unlocked unprecedented possibilities—from decentralized finance (DeFi) and NFTs to supply chain tracking and automated governance. While challenges remain around scalability and security, Ethereum continues to evolve with upgrades like Ethereum 2.0 improving speed and reducing costs.

Understanding transaction structures, gas mechanics, and contract behavior empowers both developers and users to navigate this new digital frontier confidently.

👉 Start exploring decentralized applications and smart contract interactions now.