How transactions actually work (and why gas exists)

What actually happens when you press send

When you press "send" in your wallet, something specific happens. Understanding it changes how you think about every fee you pay and every "pending" transaction you watch.

The transaction starts in your wallet. Your wallet uses your private key to sign a message that says, roughly, "transfer X amount from address A to address B, and here is the cryptographic proof I have the authority to do this." That signed message is the transaction.

Your wallet then broadcasts the transaction to the nearest node in the blockchain's peer-to-peer network. That node validates the signature, checks that you have sufficient balance, and propagates the transaction to other nodes. Within seconds, your transaction is sitting in the mempool — the global queue of pending transactions waiting to be included in the next block — across the entire network.

The mempool is not a single place. Every node maintains its own copy of pending transactions. They tend to converge quickly because nodes broadcast new transactions to their peers.

Now comes the bidding war.

Block space is the scarce resource

Each block can only contain so much transaction data. Bitcoin produces a roughly one-megabyte block every ten minutes. Ethereum produces a smaller block every twelve seconds. The exact size limits vary by chain, but the principle is universal: block space is finite, and demand for it is not.

When the network is quiet, every pending transaction fits comfortably in the next block, and fees can be very low. When the network is busy — a major NFT mint, a DeFi exploit, a market crash sending everyone to safety — there are more pending transactions than block space available. Validators must choose which transactions to include.

They choose based on fees. Higher-fee transactions get priority. Lower-fee transactions wait until the queue clears.

This is the fee market in action. It is not a centralized pricing decision. It is an auction running continuously across the network, with users bidding for block space and validators picking the most profitable bids.

When someone tells you "Ethereum gas fees are insane right now," what they are describing is the auction clearing at a high price because demand spiked. When fees drop to a few cents, the auction is clearing low because demand is quiet.

Why gas exists at all

Some new users wonder why fees exist at all. The chain is software — surely transactions could be free?

They could not, for a structural reason. If transactions were free, anyone could spam the network with infinite transactions, choking out legitimate users and bloating the chain with garbage. Fees serve as a denial-of-service prevention mechanism. The cost of submitting a transaction makes spam attacks economically unviable.

Fees also pay validators for the computational and storage work required to process and store each transaction. Without fees, no one would run the infrastructure that keeps the network alive.

The principle is simple: every chain charges some non-zero amount to use it, because the alternative is a chain that does not work.

Confirmations and finality

Once your transaction is included in a block, it is confirmed. The block is added to the blockchain. The state is updated. Your transaction has happened.

But there is a subtle wrinkle. Brand-new blocks are not yet maximally safe. There is a small probability that two miners produce competing valid blocks at nearly the same time, and the network briefly has two competing tips of the chain. Within one or two blocks, one of those tips loses and gets discarded; only one block survives. If your transaction was in the losing block, it gets re-broadcast to the mempool and re-included in a later block. The funds are not lost, but the timing changes.

This is why services that handle high-value transactions wait for multiple confirmations — additional blocks built on top of yours — before considering the transaction final. Bitcoin convention is six confirmations (about an hour) for high-value transfers. Ethereum's transition to proof-of-stake added stronger finality guarantees: after roughly fifteen minutes (two epochs), a transaction is irreversible by any normal mechanism.

For small everyday transactions, one confirmation is usually plenty. For wiring six figures to an exchange, wait for more. The risk decays exponentially with each block.

Why layer 2 changes the math

Most consumer-facing crypto activity in 2026 does not happen on Ethereum mainnet. It happens on layer 2 networks like Arbitrum, Optimism, and Base.

The reason is the economics we just walked through. Mainnet can process about fifteen transactions per second. That throughput is reserved for high-value settlement. Everyday DeFi swaps, NFT mints, and game transactions would price ordinary users out of mainnet during any meaningful congestion.

Layer 2s solve this by processing transactions off the base chain and batching them back to Ethereum periodically. The cost of the mainnet settlement is shared across thousands of layer 2 transactions, so per-transaction fees drop from dollars (or sometimes tens of dollars) to fractions of a cent.

The tradeoff is small. Layer 2s inherit Ethereum's security model with some additional trust assumptions about the sequencer (the operator that orders transactions on the layer 2 before batching). For everyday use, this tradeoff is overwhelmingly favorable. We cover layer 2s in detail in Module 8.

The practical takeaway

A few habits that follow from understanding how transactions actually work.

First, check the gas fee before approving any transaction. Your wallet shows the estimated fee. If it looks unreasonable, you can wait for quieter network conditions and resubmit later.

Second, if a transaction is "pending" for a long time, your fee was too low for current conditions. Most wallets let you bump the fee (a "speed up" or "replace" feature) to push it through.

Third, always read what the transaction is doing on your wallet's screen. Especially for token approvals — an attacker who tricks you into signing an unlimited approval for a token can drain that token from your wallet at any time later. The wallet's screen is the source of truth.

The next module looks at Ethereum specifically — what makes it different from Bitcoin, and why programmable money turned out to be a bigger idea than digital cash.