A Deep Dive: What Happens When You Send 1 DAI?

You have 1 DAI in your wallet (e.g., MetaMask) and decide to send it to 0xd8dA6BF26964aF9D7eEd9e03E53415D37aA96045 (Vitalik.eth). You click "Send," and after confirmation, Vitalik’s balance increases by 1 DAI. But what exactly occurs behind the scenes? Let’s break it down step-by-step.

Building the Transaction

Wallets like MetaMask simplify sending transactions to the Ethereum network. A transaction is essentially a user’s instruction to execute an action—here, transferring 1 DAI to Vitalik.

Key Transaction Fields:

• To: The DAI smart contract address (0x6b175474e89094c44da98b954eedeac495271d0f), not Vitalik’s address.
  Why? DAI transfers require interacting with its smart contract to update internal balances.
• Value: Set to 0 since you’re sending DAI, not ETH.
• ChainId: Identifies the blockchain (e.g., 1 for Ethereum Mainnet).
• Nonce: Increments with each transaction to prevent replay attacks (e.g., 0 for a fresh account).

👉 Learn more about Ethereum transactions

The data Field: ABI Encoding

To transfer DAI, the transaction must specify the transfer(address,uint256) function call in the DAI contract, encoded using Ethereum’s Application Binary Interface (ABI).

Example ABI-Encoded Call for 1 DAI:

{
  "data": "0xa9059cbb000000000000000000000000d8da6bf26964af9d7eed9e03e53415d37aa960450000000000000000000000000000000000000000000000000de0b6b3a7640000"
}

• Breakdown:

  • a9059cbb: Function selector for transfer(address,uint256).
  • d8da6bf...: Vitalik’s address (20 bytes).
  • de0b6b3a7640000: 1 DAI in wei (10^18 units).

Gas Fees and Execution Costs

Ethereum transactions incur fees paid in ETH, calculated as:

Fee = Gas Used × (Base Fee + Priority Fee)

• Gas Limit: Estimated via eth_estimateGas (e.g., ~34,706 units for 1 DAI transfer).
• Max Fee/Priority Fee: Determined by network conditions (e.g., 25 Gwei for urgency).

Signing the Transaction

Your wallet signs the transaction using your private key via the ECDSA algorithm, generating v, r, and s values. This ensures:

1. Authenticity: Only your account could’ve created the transaction.
2. Tamper-Proofing: Content can’t be altered post-signing.

Submitting to the Network

The signed transaction is sent to an Ethereum node via eth_sendRawTransaction. The node:

1. Validates the signature and fields (e.g., nonce, gas fees).
2. Adds to Mempool: A pool of pending transactions awaiting block inclusion.
3. Returns Tx Hash: A unique ID (e.g., bf77c4a9...).

FAQs

Why send to the DAI contract instead of Vitalik’s address?

ERC20 tokens like DAI manage balances internally. Transfers must invoke the contract’s transfer function to update ledgers.

How is the gas fee determined?

Wallets query nodes or third-party services (e.g., Infura) for real-time network fees. Users can opt for "slow" or "fast" processing speeds.

What happens if the gas limit is too low?

The transaction fails ("out of gas"), but you still pay for consumed computation.

👉 Explore Ethereum smart contracts

Key Takeaways

• DAI transfers require ABI-encoded calls to the smart contract.
• Gas fees depend on network congestion and computation complexity.
• Mempool acts as a staging area before block confirmation.

This seamless process—from wallet UI to blockchain—showcases Ethereum’s decentralized mechanics in action.

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