A Developer's Guide to Ethereum, Pt. 2

[Last update: May 16, 2023]

Welcome back! In the first installment of this series we covered a lot of ground while interacting with a simulated Ethereum network. At this point, you should have at least a fuzzy idea of how to answer these questions:

  • What's a blockchain and what’s in a block?
  • What makes Ethereum decentralized?
  • What is ether and why is it a necessary component of the network?

In this post, we’ll build on these concepts and explore some of the implications for developers, so return to Part 1 if you skipped it or need a refresher.

What’s next?

We’re going to take a deeper look at how you can interact with the Ethereum network, starting with accounts. There are some significant differences between Ethereum accounts and Web 2.0 accounts.

Note: “Web 2.0” was coined to describe the Internet era that introduced user-generated content, e.g., social media and blogs. Ethereum and other decentralized technologies are said to be a part of the next generation of the Internet: Web 3.0. The abbreviation, Web3, is used by libraries like Web3.js and web3.py, and elsewhere around the ecosystem.

Web2 vs. Web3

It’s hard not to collect accounts in today’s web. You have one for each social media app, news site, delivery service, retailer, and airline — to name a few. Each of these accounts lives on the company's servers, which makes you subject to their terms and conditions, privacy policy, and security practices. Your account can be frozen, deleted, censored, or altered at the discretion of the host company.

Web3 represents a paradigm shift for account management: you and you alone own your Ethereum accounts. When you create an account, it’s done outside of the scope of any company and can travel with you to multiple apps. In fact, creating an Ethereum account doesn’t require interaction with the Ethereum blockchain at all. Let’s create one now to prove it.

Note: This exercise is purely for educational purposes. Don't store real value in an account unless you understand the security implications. Some mistakes cannot be undone! More context to come.

Creating an account

Same drill as last time: the concepts will be demonstrated in an IPython shell. If you’re not a Python developer, no problem. Just follow along conceptually.

Environment setup

Three steps to set the stage:

  1. Install web3.py, eth-tester, and IPython (if you didn't already in Part 1):
    $ pip install web3 "web3[tester]" ipython
  2. Start up a new sandbox:
    $ ipython
  3. Import the Web3 module:
    In [1]: from web3 import Web3

Account generation

Let's create that account:

In [2]: w3 = Web3() # No provider necessary for this demo

In [3]: acct = w3.eth.account.create()

# public address:
In [4]: acct.address
Out[4]: '0x33736Bf0Ac7A046eAC36648ca852B91EAe5f567A'

# private key:
In [5]: acct.key
Out[5]: HexBytes('0x7aca78f5e54...')

That's all there is to it! There's no registration process and no round-trip to the blockchain or any server. In fact, you can disconnect from the Internet altogether and still create a valid Ethereum account.

In the code above, you'll find two components of an account: a public address and a private key. Put simply, a private key is the password for an account. A public address is a shareable account number derived from the private key. As seen in the code sample, both are typically represented as hexadecimal numbers.

Note: Conveniently, Ethereum users and app developers don't have to understand exactly how the the account generation process works, but if you're interested in a very deep dive, see my previous posts: Ethereum 201: Mnemonics and Ethereum 201: HD Wallets.

Using an account

This is an important takeaway: the only way to affect a change on the blockchain is via a transaction and every transaction must be signed by an account. Accounts can initiate transactions which transfer ether, deploy smart contracts, or interact with contracts to do things like mint new tokens. Let's briefly explore each.

Transferring ether

Recall that EthereumTesterProvider enables a test environment seeded with accounts and fake ether. Let's start by viewing some test accounts and an account balance:

In [1]: w3 = Web3(Web3.EthereumTesterProvider())

In [2]: w3.eth.accounts
Out[2]: ['0x7E5F4552091A69125d5DfCb7b8C2659029395Bdf',
 '0x6813Eb9362372EEF6200f3b1dbC3f819671cBA69', ...]

In [3]: acct_one = w3.eth.accounts[0]

In [4]: w3.eth.get_balance(acct_one)
Out[4]: 1000000000000000000000000

Next, we'll introduce a new account:

In [5]: acct_two = w3.eth.account.create()

In [6]: acct_two.address
Out[6]: '0x2FF32Bcc040e98EBa3c0ae2d8ad9C451a78d3E24'

In [7]: acct_two.key
Out[7]: HexBytes('0x02af55504048265...f70e9965a3505ea')

Then send one of those fake ether over to the new account:

In [8]: tx_hash = w3.eth.send_transaction({
	  'from': acct_one,
	  'to': acct_two.address,
	  'value': Web3.toWei(1, 'ether')

This transaction will execute immediately, but some important details are hidden from view. web3.py is smart enough to know that EthereumTesterProvider is managing acct_one and that we're using a test environment. For our convenience, acct_one is "unlocked," meaning transactions from the account are approved (signed) by default.

So, what does a transaction look like if not from an unlocked account? To find out, let's send some ether from acct_two – an account not managed by EthereumTesterProvider. This more manual process takes three steps: 1) specify the transaction details, 2) sign the transaction, then 3) broadcast the transaction to the network.

# 1) manually build a transaction
In [9]: tx = {
          'to': acct_one,
          'value': 10000000,
          'gas': 21000,
          'gasPrice': w3.eth.get_block('pending')['baseFeePerGas'],
          'nonce': 0

# 2) sign the transaction with the sender's private key
In[10]: signed = w3.eth.account.sign_transaction(tx, acct_two.key)

# 3) send the "raw" transaction
In[11]: tx_hash = w3.eth.send_raw_transaction(signed.rawTransaction)

Let's break that down. Step 1 defines a Python dictionary with the required transaction fields. We briefly learned about gas (transaction fees) in Part 1, but nonce may be new territory. In Ethereum, a nonce is simply the transaction count of the account. The Ethereum protocol keeps track of this value to prevent double-spending.

Since this is the first transaction being made by acct_two, its nonce is zero. If you supply the wrong value, the result is an invalid transaction and is rejected by web3.py:

ValidationError: Invalid transaction nonce: Expected 0, but got 4

Note that a nonce is still required when sending a transaction from acct_one, but EthereumTesterProvider keeps track of transaction counts for managed accounts and adds the appropriate nonce to new transactions.

Another detail you may have noticed is that a from value is missing from tx. In this case, the sign_transaction method can infer the sender's address from their private key. Again, a public address can be derived from a private key, but a private key cannot be reverse engineered from its public address.

Finally, a "raw" transaction is just the transaction data and signature represented as bytes. Under the hood, send_transaction performs the same encoding required by send_raw_transaction.

Deploying smart contracts

A full introduction to smart contracts will be covered in a separate blog post, but this is a good opportunity for a sneak peak; interacting with smart contracts looks very similar to a standard transaction.

Briefly, smart contracts are programs that live on the Ethereum blockchain, available for anyone to use. When you're ready to deploy a smart contract, you compile the code down to bytecode and include it in a transaction as a data value:

bytecode = "6080604052348015610...36f6c63430006010033"

tx = {
   'data': bytecode,
   'value': 0,
   'nonce': 0,

Besides requiring more gas, the only other distinction in a contract deployment transaction is the absence of a to value. The rest of the process is identical to a standard transfer of ether.

Interacting with smart contracts

Using a deployed contract is just another variation of the same transaction format. In this case, the to value points to the deployed contract's address and the data value will vary based on the inputs of the contract method being executed.

Note that tools like web3.py offer more intuitive interfaces for deploying and interacting with contracts:

# interact with an existing contract:
myContract = web3.eth.contract(address=address, abi=abi)
twentyone = myContract.functions.multiply7(3).call()

# deploy a new contract:
Example = w3.eth.contract(abi=abi, bytecode=bytecode)
tx_hash = Example.constructor().transact()

Signing messages

Transactions are the only way to affect the state of the blockchain, but they aren't the only way an account can be utilized. Simply proving ownership of a particular account can be useful in its own right.

As an example, OpenSea, an Ethereum marketplace, will allow you to bid on items for sale by signing a message with your account. Only when an auction expires or the seller accepts your offer is an actual transaction placed. Similarly, the app uses signed messages as a form of authentication before showing you some account details.

Unlike transactions, signed messages cost nothing. They aren't broadcast to the network and aren't included in a block. A message is simply a bit of data signed with a private key. As you would expect, the private key of the sender remains hidden, but the receiver can mathematically prove the public address of the sender. In other words, the message sender can't be spoofed.

Note: the terms "on-chain" and "off-chain" are shorthand for whether data lives on the Ethereum blockchain. For example, smart contract state is managed on-chain, but message signing occurs off-chain.

We'll save a deep dive into message signing for a future post, but here's some pseudocode to give you an idea of the workflow:

# 1. write a message
msg = "amanaplanacanalpanama"

# 2. sign it with an account's private key
pk = b"..."
signed_message = sign_message(message=msg, private_key=pk)

# 3. send `signed_message` over the wire

# 4. message receiver decodes sender's public address
sender = decode_message_sender(msg, signed_message.signature)
# '0x5ce9454...b9aB12E'

Web3 account implications

So, we can create Ethereum accounts with surprising ease: offline and separate from any app. Those accounts can be used to sign messages or send various flavors of transactions. What does this mean for app developers?

Permanent passwords

A harsh reality of this world is that there are no password recovery services for basic account types. If you lose your private key and recovery phrase, you can kiss that account goodbye. Such is the double-edged sword of true ownership. App developers have an ethical obligation to onboard and educate Ethereum newcomers on this reality. (Note: social recovery wallets may improve this user experience and "account abstraction" is one related research effort – topics for another blog post.)

Onboarding challenges

Introducing new users to Ethereum is complicated. As you've been learning, there are a number of paradigm shifts that aren't immediately obvious. You may have to guide visitors with no Ethereum account yet or users with no ether to pay for transaction fees. The amount of education material required will depend on your audience, but the whole ecosystem will benefit if you're able to onboard new users gracefully.

Fewer account management features

Given that users create accounts outside of your app, you may discover that your use case requires few or no account management features at all.

New business models

Data mining isn't going away, but this new account ownership model enables a healthy alternative to the Web 2.0 model in which a company owns every bit of a user's data and sells it to the highest bidder. Ethereum's smart contract platform offers a world of new incentive structures.

New software architectures

An interesting wrinkle in the definition of your business model will be what to handle on-chain vs. off-chain. As we've discussed, message signing requires no on-chain interaction. There's also nothing stopping you from using a private database for some of your data and the Ethereum blockchain for other bits of data or functionality. There are plenty of tradeoffs to consider: usability, cost, transparency, decentralization, privacy, and so on.

And breathe

Did all that sink in? Test yourself:

  • How do Ethereum accounts differ from those in Web 2.0?
  • In what ways can Ethereum accounts be used?
  • What are the implications of Ethereum accounts for app developers?

There's no limit to the number of accounts you can generate and you're free to use the same account for several apps or create a new account for every app. This is partly what is meant when a public blockchain is described as permissionless: there is no gatekeeper between you and the network. Don't wait for anyone to give you permission to build.

When you're ready to forge ahead, Part 3 introduces the next actor in the system: smart contracts.

Thanks for reading! Have follow-up questions or requests for topics covered? Let me know via Twitter.

Special thanks to @gichiba for early review and @austingriffith for the analogy that spurred this post.