What are the two types of Ethereum accounts?

Externally Owned Accounts (EOAs) are controlled by a private key — these are regular user wallets. Contract Accounts are controlled by smart contract code deployed on the blockchain — no private key exists, and the contract's own code determines how it behaves.

What is a transaction on Ethereum?

A transaction is a signed message from an EOA that changes the state of the blockchain — transferring ETH, deploying a smart contract, or calling a contract function. Every transaction consumes gas and requires a fee paid in ETH.

What is 'finality' in Ethereum?

Finality means a transaction cannot be reversed. Under Ethereum's Proof-of-Stake with Casper FFG, finality is achieved after two checkpoint epochs (~12.8 minutes). Before that point, a transaction is confirmed but theoretically reversible under extreme conditions.

The mempool (memory pool) is a waiting room for unconfirmed transactions. When you submit a transaction, it enters the mempool and waits for a validator to include it in a block. Transactions with higher priority fees get picked up faster during congestion.

Ethereum · Explainer

How Ethereum Works

The EVM, account types, transaction lifecycle, validators, and block production — the mechanics behind the world's most programmable blockchain.

By Ashir Khan3 min read

Ashir Khan writes about cryptocurrency security, self-custody, macro market analysis, and regulatory policy at CryptoBeacon.

Last updated: September 1, 2026

Ethereum as a state machine

The simplest mental model for Ethereum is a global state machine. The "state" is a snapshot of every account balance and every piece of smart contract storage on the network at a given moment. Transactions are inputs that transition the state from one version to the next — every transaction changes something, and every change is recorded permanently.

Unlike Bitcoin, where the state is just a list of unspent coin outputs, Ethereum's state is a full database of accounts — each with a balance, nonce, code, and storage. This richer state model is what enables programmability.

Two types of accounts

Externally Owned Account (EOA)

•Controlled by a private key
•Can initiate transactions
•Has no code attached
•Regular user wallets (MetaMask, Ledger, etc.)

Contract Account

•Controlled by smart contract code
•Cannot initiate transactions independently
•Executes when triggered by an EOA
•DeFi protocols, NFT contracts, DAOs

Transaction lifecycle

When you send a transaction on Ethereum, here is what happens:

Your wallet signs the transaction with your private key, specifying recipient, amount, gas limit, and fee.
The transaction is broadcast to the network and enters the mempool — a queue of pending transactions.
A validator selects your transaction (prioritising higher fees during congestion) and includes it in a proposed block.
Other validators attest to the block's validity. After sufficient attestations, the block is added to the chain.
After ~12.8 minutes and two checkpoint epochs, the block reaches finality — it cannot be reversed.

The Ethereum Virtual Machine

The EVM is the runtime environment that executes smart contract bytecode. Every full node runs the EVM independently and must arrive at the same output — this determinism is what makes smart contracts trustless. The EVM is stack-based, Turing-complete (with gas limits preventing infinite loops), and sandboxed (contracts cannot access the host system).

Gas is the unit of computation cost in the EVM. Every operation has a fixed gas cost. If a transaction runs out of gas mid-execution, the state changes are reverted but the gas is still consumed — this prevents spam.

Validators and block production

Under Proof of Stake, validators are chosen pseudo-randomly to propose blocks, weighted by their stake (32 ETH minimum). Other validators form committees that attest to the proposed block's validity. This committee-based approach is more energy-efficient than mining while maintaining decentralisation.

Validators who behave dishonestly can have their stake slashed — burned as a penalty. This economic incentive aligns validators with the network's honest operation. Learn more: Ethereum Validators Explained →