Understanding ETH Contract Authorization and Transfer: Why Use the Approver's Private Key?

When working with Ethereum smart contracts, especially token transfers involving approve and transferFrom, confusion often arises around which account’s private key should be used to sign a transaction. A common scenario involves Account A authorizing Account B to spend tokens on its behalf, after which Account B attempts to transfer those tokens to Account C — only to find the transaction stuck in a pending state unless signed with Account A’s key.

Let’s clarify this behavior, correct misunderstandings about function usage (transfer vs transferFrom), and explain how Ethereum’s ERC-20 authorization model actually works.

How ERC-20 Token Approval Works

In the ERC-20 standard, when one user (Account A) wants to allow another party (Account B) to spend or transfer their tokens, they must first call the approve() function on the token contract:

function approve(address spender, uint256 value) public returns (bool);

This sets an allowance — essentially a spending limit — for Account B to use from Account A’s balance. However, this does not transfer ownership or control of private keys. It only grants permission to initiate withdrawals under specific conditions.

Once approved, Account B can then call transferFrom() on the same contract to move funds from Account A to any destination (e.g., Account C):

function transferFrom(address sender, address recipient, uint256 amount) public returns (bool);

Note: The first parameter is sender, which is Account A — the original token holder who gave approval.

Why Is Account A’s Private Key Not Used in transferFrom?

Here’s where a critical misunderstanding occurs in the original question:

👉 You do NOT sign the transferFrom transaction with Account A’s private key.

Instead, Account B signs it, because Account B is executing the transaction. However, the logic inside the transferFrom function checks:

1. Whether Account A (the sender) has sufficient balance.
2. Whether Account B (the spender) has enough allowance approved by Account A.

So why did the user observe that using Account A’s key made the transaction succeed?

The answer lies in incorrect use of the transfer() function.

Transfer vs TransferFrom: Key Differences

In your code snippet:

const data = instance.methods.transfer(currentAccount, amout).encodeABI()

You are calling transfer(currentAccount, amount) — meaning: “send amount tokens to currentAccount” — but you’re doing so from currentAccount itself. This makes no logical sense in the context of spending an allowance.

Moreover, since you're trying to spend tokens that belong to someone else (via prior approval), you must use transferFrom.

✅ Correct usage would be:

const data = instance.methods.transferFrom(currentAccount, toAccount, amount).encodeABI();

Where:

• currentAccount = Account A (the approved token owner)
• toAccount = Account C (the final recipient)
• The transaction is sent from Account B (the spender)

And crucially — signed by Account B’s private key, not Account A’s.

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Why Did Using Account A’s Key Seem to Work?

There are two possible explanations:

1. Misattribution of roles: You may have accidentally used Account A as both the sender and signer in a direct transfer, bypassing the need for approval altogether.
2. Nonce or gas issues: Transactions failing with B's key might not be due to signing but rather incorrect nonce, low gas price, or network congestion — all of which cause "pending" states.

Using Account A’s key doesn’t validate the logic — it just means you’re making a regular transfer from A to C directly, without involving B at all.

Correct Flow for Authorized Transfers

Here’s the correct sequence:

Step 1: Approval (by Account A)

Account A calls approve(B, amount) on the token contract.

const approveData = instance.methods.approve(spenderAddress, amount).encodeABI();
// Signed with A's private key

Step 2: TransferFrom (by Account B)

Account B calls transferFrom(A, C, amount).

const transferFromData = instance.methods.transferFrom(
  '0xAAAAAAAAA', // owner (A)
  '0xCCCCCCCCC', // recipient (C)
  amount
).encodeABI();

const txData = {
  nonce: web3.utils.toHex(nonce),
  gasLimit: web3.utils.toHex(250000),
  gasPrice: web3.utils.toHex(10e9),
  to: contractAddress,
  from: '0xBBBBBBBBBB', // B's address
  value: '0x0',
  data: transferFromData
};

// Signed with B's private key
const privateKey = Buffer.from('BBBBBBBBBBBkey', 'hex');

This will succeed only if:

• The allowance from A to B ≥ amount
• A has sufficient balance
• The nonce and gas settings are valid

Common Mistakes and Debugging Tips

• ❌ Using transfer(from, amount) instead of transferFrom(from, to, amount)
• ❌ Signing transferFrom with the owner’s key instead of the spender’s
• ❌ Reusing nonces or setting too low a gas limit
• ❌ Forgetting to wait for confirmation of the approve() transaction before calling transferFrom

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Frequently Asked Questions (FAQ)

Q1: Can Account B spend more than the approved amount?

No. The transferFrom function will revert if the requested amount exceeds the allowance set by approve(). To increase it, Account A must call approve() again.

Q2: Does Account B need ETH to call transferFrom?

Yes. Like all Ethereum transactions, calling transferFrom requires gas, paid in ETH from Account B’s balance.

Q3: Can I cancel an approval?

Yes. Account A can revoke access at any time by calling approve(B, 0) or setting a new limit.

Q4: Is there a risk if I over-approve?

Yes. If you approve a malicious contract or compromised wallet for a large amount, it could drain your balance later. Always approve minimal necessary amounts.

Q5: Why is my transaction stuck in “pending”?

Common causes include:

• Too low gas price
• Network congestion
• Invalid nonce
  Ensure you're using up-to-date values for gasPrice and nonce.

Q6: Do I need to re-approve after a transfer?

No. The allowance decreases by the transferred amount. You only need to re-approve when it runs out or is revoked.

Final Thoughts

Understanding the distinction between ownership, allowance, and execution rights is essential in Ethereum development. Just because Account A owns tokens doesn’t mean they execute every transfer — and just because Account B spends them doesn’t mean they sign with A’s key.

Use:

• ✅ approve() + transferFrom() for delegated spending
• ✅ Sign with the spender’s private key (Account B)
• ✅ Avoid misusing transfer() in place of transferFrom()

By following these patterns, you ensure secure, functional interactions with ERC-20 contracts — whether building dApps, managing wallets, or automating DeFi strategies.

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