Back to Basics: How Transactions Work on Ethereum
We’ve all been there. Sitting on a stack of stablecoins, patiently waiting for your ETH target price to hit so you can redeploy your capital and take off on the inevitable moon mission.
When the price hits you need to act fast.
You click through to your favorite DEX, follow the on-screen prompts for the swap, then MetaMask pops up in the top right corner of your screen. You’ve done this so many times you can complete the transaction with your eyes closed.
After a few clicks of the mouse, a few taps of your hardware wallet, and furiously refreshing Etherscan, waiting, until you get the magic words you have been anticipating “Transaction confirmed”.
And you’re not alone, Ethereum settles trillions in dollar value from millions of users every year. Ranging from simple DEX swaps, to NFT mints and DeFi activity; but once you click ‘Confirm’ in your wallet, we rarely stop to think what is happening under the hood while we wait those dreaded seconds before the confirmation message.
In this article we go back to basics on a multi-trillion dollar transaction settlement layer and look at how transactions work on Ethereum.
The Transaction Lifecycle
So what happens when you click ‘Confirm’ and send a transaction? On the blockchain, a transaction hash is cryptographically created.
Think of a transaction hash as a digital fingerprint, used to prove that the signature of the EOA/wallet owner/sender initiated the transaction.
Once the transaction is confirmed to be authorized and legitimate, it is broadcasted to the network and added to the public transaction pool* (or mempool), a holding ground for all pending transactions on the network. The state of each transaction is now ‘pending’.
Validators running vanilla versions of the Ethereum client, such as Geth, then pick transactions from the pool to form a block.
Transactions are typically picked according to the base fee, which adjusts dynamically based on network traffic, and the priority fee, an optional incentive paid to validators to entice block inclusion. Both of these fees have recommended amounts, but can be modified by the user.
Once a block is formed, it is then verified, all the transactions within the block are executed, and the state is changed to ‘successful’.
The entire process takes on average 10–20 seconds, however, may take longer in peak times and depending on the amount of gas the sender has elected to pay.
MEV Transaction Flow
The Ethereum MEV ecosystem has undergone significant change since the move to PoS, with new intermediaries joining the party.
No longer does a searcher send transaction bundles directly to miners, but with proposer/builder separation, searchers now utilize block builders to submit their bundles to validators via a mev-boost relay.
Searchers now hand pick transactions from the public pool, creating a bundle.
The specific transactions and order they are picked is based on the searcher identifying extra value to be extracted; this may be in the form of a DEX arbitrage opportunity, a lending liquidation, or a dreaded sandwich attack.
The suggested transaction bundle is funneled through both a block builder and relay, before making its way to a validator that approves and validates the transactions in the requested order.
Searchers incentivise validators to process the bundle, with the size of the tip sometimes exceeding the block reward.
Validators play a key role in MEV transaction flow, but this is 100% voluntary. Validators can pick from a range of relays to accept blocks from — each with their own unique features and benefits
It’s completely up to each validator to decide which and how many relays to connect to.
Eden’s MEV Transaction Infrastructure
At Eden Network, we operate multiple block builders and a relay, which, at time of writing, covers over 60% of the network and has historically provided some of the most lucrative rewards on Ethereum.
The goal is to deliver the most robust and valuable transaction infrastructure through leveraging our network of searchers combined with our unique validator reach.
The ultimate outcome Eden strives to achieve for Ethereum users is to be able to move their transaction from pending to confirmed utilising the fastest and safest path possible.
So in conclusion…
