How Do Ethereum Payments Work 

Ethereum is a first generation blockchain technology used for building DApps, holding assets and conducting transactions in a decentralised environment. Ethereum is a decentralised platform, which is scalable and programmable. It enables a peer-to-peer (P2P) network for secure execution and verification of application code through smart contracts. These are automated blocks of software that allow participants to transact without a central authority. Transaction records in Ethereum are immutable and transparent while giving full ownership to participants. To send transactions through user-created accounts, the sender must spend Ether (ETH), the blockchain’s native Crypto. Thanks to its acceptance, Ether has become a popular means of payment. Decentralised applications (DApps) use ETH to interact and transact with applications on the Ethereum blockchain. Applications use bridges to work with Cryptos other than ETH. This is called cross-chain compatibility.

Any currency fits the criteria of “a unit of payment” if it fulfils few properties of money. 

1)The value reserve of the asset retains its purchasing power in the future. 

2)The value can be stable or increase over time, but it will not decrease. 

Risk aversion is a key concept behind a store of value, and prices will rise steadily when there is constant demand for the asset. As a medium of exchange, money serves as an instrument that facilitates the sale, purchase, or trade of commodities or services between parties. Currency is the most common means of exchange for conducting economic transactions. As a unit of account, money must be divisible, fungible and countable. Divisibility means the division of a unit of account into its components, which correspond to the original value. Fungibility is the property by which a unit of currency has the same value as any other unit. Ether performs well on all of these parameters. ETH is scarce digital money held and exchanged on a blockchain. Ether units can be used to measure the value of goods and services and then used for purchase. A person can also use Ethereum for investment purposes. You could buy ETH and hold it for later .

Who Accepts Ethereum as a Payment

With Ethereum’s meteoric rise in 2021, several merchants have started accepting Ethereum as a payment. Some of the merchants include Travala, Overstock, and Cryptoholic. And the list does not end here. There are quite a few merchants who accept Ethereum as a means of payment. But the most famous platforms which accept Ethereum are NFT platforms like Opensea. Most NFTs minted today are based on the Ethereum blockchain because of the blockchain’s versatile nature. Ethereum’s transition to Proof of Stake is going to increase the adoption of Ethereum, and the number of merchants accepting Ethereum is estimated to increase further. 

The transition to a blockchain-based ecosystem will bring a number of benefits for both users and entrepreneurs. Few points that explain in detail about how Ethereum works well for businesses are mentioned below

Additional Payment Option

In a world that is fast embracing Cryptos, payment through Crypto offers an advantage to businesses over their competitors. Crypto asset gateways facilitate merchants to accept payments in digital and get the amount in fiat.


A decentralised ecosystem is inherently transparent and gives customers more confidence. Cryptographic transactions are executed on a chain of blocks where they are immutably written, subject to authority overseeing these blockchains.

Fewer Frauds

Ethereum transactions during purchases and sales are actually routed through a smart contract, making fraudulent activity very rare. When smart contracts are inspected, scammers have the slightest chance of getting away with it. 

Fast Transactions

Global transactions on Ethereum are significantly faster compared to traditional international payments. Crypto transactions are completed in minutes, while fiat which routes through banks can take days to be reflected in the account.


Finality refers to the state of a transaction when it is part of a block that cannot change. For Ethereum, which works conventionally on the Proof-of-Work (PoW) consensus algorithm, the mean time to get finality is six minutes (25 confirmations), while the mean time for mining a single block is 15 seconds only. This is significantly less than Bitcoin (BTC), the largest Crypto, which takes 60 minutes (six confirmations) to reach finality, with an average time of 10 minutes to mine a block. When the merge (the implementation of Ethereum’s Proof of Stake consensus layer) is complete, the time it takes for an ETH transaction to be final will be further reduced.

Data Coordination

Ethereum has developed a decentralised architecture to allocate information and trust impartially. This eliminates the need for a central entity to coordinate data. The decentralised ecosystem ideally manages the system and processes transactions.

Incentive Layer

The ecosystem facilitates the development of mechanisms that reward supporting activities such as verification and penalising activities that negatively affect the blockchain and the surrounding mechanism. Incentives to encourage honest behaviour help meet security requirements.


Any asset recorded in a digital format can be tokenized on Ethereum. Tokenization is helping to break down previously sluggish assets like real estate that have simply become too expensive. Tokenization is also opening up new economic models such as collaborative data management.

Decentralised Domain

Traders with no prior exposure to crypto assets may find sending and receiving Cryptos overwhelming. Crypto wallet addresses are a long string of numbers and letters. Also, a different address is required to collect each Crypto payment. Thanks to the Ethereum Name Service (ENS), users can create a universal nickname for all their public addresses. Instead of using a bunch of unreadable keys to receive crypto payments. ENS domains are easy to remember, e.g. “Joseph.eth.” could be a domain instead of a long string of characters.

Read more: What is Ethereum Name Service?

Both traders and users need a safe and convenient place to store ETH. One can store ETH in hot or cold wallets, depending on factors such as security and convenience. A “hot” Crypto wallet is accessible online and facilitates transactions using public and private keys. On the other hand, a “cold” wallet, also known as a hardware wallet, is a physical item that holds Cryptos offline. Cold wallets are considered more secure than hot wallets, while the latter are more convenient.

Most ETH holders tend to store them in active wallets, which are basically software programs that can interface with the Ethereum blockchain. Popular wallets include desktop wallets, mobile wallets, and most exchange custody wallets. Although these wallets make it easy to transfer crypto, they are vulnerable to hackers. For anyone holding ETH in bulk, an ideal solution might be to keep most of their crypto in a cold wallet and just enough in a hot wallet to make regular transactions. Cold wallets, not connected to the internet are at less risk of being compromised compared to hot wallets. A USB memory stick used to store ETH and other Cryptos store a user’s private keys. Any holder of ETH could also hold it in escrow via a paper wallet that they can generate on certain websites. A paper wallet has public and private keys related to ETH.

What is the Gas Fee?

The concept of gas was introduced in Ethereum to balance the computing power that the ecosystem needs to process and validate transactions. All computing requirements to process a transaction come from the miners, and the gas fees associated with specific transactions are distributed among the miners involved in forming the block. A gas limit specifies the maximum amount of ETH that can be mined is being spent on a particular transaction. A higher gas limit means one has to spendmore to complete the transaction. Gas costs rise and fall with the supply and demand for processing power.

What is an Ethereum Virtual Machine?

EVM (Ethereum Virtual Machine) can run various types of smart contracts including swaps, options contracts, coupon payment bonds, bets and wagers, employment, escrow and more. This allows businesses to raise funds in an automated manner without human intervention. Previously, Gas costs on Ethereum skyrocketed when demand was high, often to exorbitant levels. After the introduction of Ethereum’s consensus layer, the problem was mitigated.

If an ETH transaction fails or someone accidentally submitted an incorrect address, is there a refund policy? Ethereum does not refund Gas costs for failed transactions. The basic design of an open blockchain like Ethereum makes such an arrangement unlikely. Fees paid by the sender for adding transactions to blocks are paid directly to the miners on the Ethereum network, regardless of the status of the transaction as successful or failed.

In the event of a failed transaction, the Ether that a user attempted to send will be returned to the wallet. However, if someone sends ETH to the wrong address, they will lose fees and tokens unless they know the recipient and agree to return the funds. If the funds were sent to an address associated with an exchange, these may be restored at the exchange’s discretion. You would need to share transaction details with the exchange, e.g. the address you want to send ETH to and the hash of the wrong transaction.

Disclaimer : This report is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. The Company has prepared this report based on information available to it, including information derived from public sources that have not been independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. This report is preliminary and subject to change; the Company undertakes no obligation to update or revise the reports to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. Trading & Investments in Cryptos viz. Bitcoin, Bitcoin Cash, Ethereum etc.are very speculative and are subject to market risks. The analysis by Author is for informational purposes only and should not be treated as investment advice

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