EIP-1559

EIP-1559 is an Ethereum Improvement Proposal that introduced a new transaction pricing mechanism, replacing the traditional first-price auction with a base fee that is algorithmically adjusted per block and burned, plus a priority fee (tip) for miners/validators. This change was designed to make gas fees more predictable, improve user experience, and reduce fee volatility by dynamically expanding and contracting block sizes. It was activated in the London hard fork in August 2021 and is a core component of Ethereum's fee market.

The mechanism operates with two key components: the base fee and the priority fee. The base fee is the minimum price required for a transaction to be included in a block; it is calculated by the protocol based on network congestion from the previous block and is destroyed (burned) upon payment, permanently removing ETH from circulation. The priority fee is an optional tip paid directly to the block producer to incentivize them to prioritize the transaction. This structure allows users to submit transactions with a max fee they are willing to pay, knowing they will only pay the current base fee plus their tip, with any excess refunded.

A critical economic consequence of EIP-1559 is ETH burning. By destroying the base fee, the network introduces a deflationary pressure on Ethereum's native currency. When network activity and the base fee are high, the burn rate can exceed the new ETH issuance from block rewards, making ETH a potentially deflationary asset. This "ultrasound money" dynamic fundamentally altered Ethereum's monetary policy, creating a direct link between network utility and ETH scarcity.

The upgrade also modified block architecture. Instead of a fixed gas limit per block, EIP-1559 introduced a flexible block size with a target of 15 million gas and a maximum limit of 30 million gas. The protocol algorithmically adjusts the base fee to push block sizes toward the target: if a block uses more than the target gas, the base fee increases; if it uses less, the base fee decreases. This allows for temporary throughput increases during high demand while maintaining long-term stability.

For users and developers, EIP-1559 simplified the fee estimation process. Wallets can now reliably suggest a fee that will likely get a transaction included in the next block, reducing the guesswork and failed transactions associated with the old auction model. However, during periods of extreme demand, the priority fee (tip) becomes the competitive variable, and users must still potentially overpay to ensure timely execution, meaning congestion pricing is not entirely eliminated.

EIP-1559 is an Ethereum Improvement Proposal that fundamentally reformed the network's transaction fee market and monetary policy, introduced in the London Hard Fork in August 2021. Its core innovation was replacing the traditional first-price auction model with a base fee that is algorithmically adjusted per block and burned, coupled with a priority fee (tip) for miners/validators. The proposal, authored primarily by Vitalik Buterin, Eric Conner, Rick Dudley, Matthew Slipper, and Ian Norden, aimed to create more predictable transaction fees, improve user experience, and introduce a deflationary pressure on ETH's supply through the burn mechanism.

The etymology of its name is straightforward: it is simply the 1559th proposal in the Ethereum Improvement Proposal repository. However, its conceptual origins are rooted in long-standing economic critiques of the first-price auction model used in Bitcoin and early Ethereum. This model was known to cause inefficiencies like fee overpayment and unpredictable confirmation times during network congestion. EIP-1559's design draws from academic literature on tipping and variable block sizes, proposing a hybrid system where the protocol itself sets a base fee for inclusion, and users can add a tip to incentivize faster processing.

The development of EIP-1559 was a multi-year process involving extensive community debate, simulation, and testing. Key concerns addressed during its refinement included miner/validator incentives (ensuring the new system didn't reduce their revenue too drastically), the safety of the base fee adjustment algorithm, and wallet integration. Its implementation marked one of the most significant non-consensus changes to Ethereum's economic layer, setting a precedent for fee market design in other blockchain ecosystems and laying groundwork for the network's post-Merge economics.

EIP-1559 (Ethereum Improvement Proposal 1559) is a transaction pricing mechanism that introduces a base fee for network inclusion, which is algorithmically adjusted per block based on network congestion. This base fee is burned (destroyed), permanently removing ETH from circulation. Users can add a priority fee (tip) to incentivize validators to prioritize their transaction. This structure replaces the previous simple, opaque auction model, aiming to make fee estimation more reliable and to introduce a deflationary pressure on ETH's supply.

The mechanism operates through a gas target (currently 15 million gas per block). If the previous block used more gas than the target, the base fee increases; if it used less, the base fee decreases. This creates a negative feedback loop that aims to keep block sizes near the target. Blocks have a gas limit (currently 30 million gas, or 2x the target) to handle temporary spikes in demand. The base fee adjustment is calculated deterministically by the protocol, making future fees more predictable for users and wallets.

From a user's perspective, wallets now estimate the current network base fee and suggest a total maxFeePerGas (covering the base fee and tip) and a maxPriorityFeePerGas (the tip alone). If the base fee rises above the user's maxFeePerGas, the transaction will stall until congestion eases. The portion of the maxFeePerGas that covers the base fee is always burned, while the priority fee is paid to the block proposer. This design reduces fee overpayment uncertainty common in the old auction system.

The burning of the base fee is EIP-1559's most significant economic change, often described as introducing an ultrasound money dynamic to Ethereum. By removing ETH from supply with every transaction, the net issuance of new ETH can become negative during periods of high network usage, making ETH a potentially deflationary asset. This burn counteracts the issuance to validators, tying Ethereum's security spending more directly to its economic utility and demand.

Implementation required a new transaction type (TransactionType2 or EIP-1559 transactions) and is a core part of the Ethereum protocol post the London network upgrade. It coexists with legacy transaction types, but all modern wallets and applications use the new type for its efficiency and predictability. The success of EIP-1559 in smoothing fee volatility has made it a foundational model studied for adoption by other blockchain networks seeking to improve their own fee markets.

The EIP-1559 transaction flow begins when a user constructs a transaction with two key parameters: a base fee (set by the protocol and burned) and a priority fee (a tip to the miner/validator). The user's wallet typically estimates these values, aiming for a total max fee (max_fee_per_gas) that caps their total cost. This structure replaces the legacy first-price auction model with a more predictable gas fee system.

Once broadcast, the transaction enters the mempool. Validators building the next block will include transactions where the max_fee_per_gas covers the current network's base fee. The protocol calculates and enforces the base fee for each block based on the congestion of the previous block, creating a variable block size that expands and contracts to manage demand.

When the block is finalized, the fee mechanism executes: the entire base fee portion (in ETH) is permanently destroyed or burned, reducing the overall Ether supply. The priority fee is paid to the block proposer. This burn mechanism is central to EIP-1559's economic design, making Ether a potentially deflationary asset and fundamentally altering Ethereum's monetary policy.