EIP-1559

EIP-1559 is an Ethereum Improvement Proposal that introduced a new transaction pricing mechanism, replacing the traditional first-price auction model with a base fee and priority fee system. The protocol-determined base fee, which is burned (destroyed), is the minimum cost to include a transaction in a block, while users can add an optional priority fee (tip) to incentivize miners or validators for faster inclusion. This design aims to make transaction fees more predictable and reduce fee volatility by algorithmically adjusting the base fee based on network congestion, targeting 50% block capacity.

The implementation of EIP-1559 introduced a fundamental change to Ethereum's economic model through the burning of the base fee. Unlike previous systems where the entire transaction fee was paid to miners, the base fee is permanently removed from circulation. This creates a deflationary pressure on the ETH supply, as the amount of ETH burned often exceeds the new issuance from block rewards, especially during periods of high network activity. This mechanism is often referred to as "The Burn" and has become a core component of Ethereum's monetary policy post-Merge.

For users and developers, EIP-1559 improves the fee estimation experience. Wallets can now provide more reliable gas price quotes because the base fee is set by the protocol and is predictable for the next block. However, during times of extreme demand, users must still compete via the priority fee to ensure timely execution. The proposal also introduced a new transaction type and modified the block structure to include a gas target and a flexible gas limit, allowing blocks to expand temporarily to absorb sudden spikes in demand.

EIP-1559 (Ethereum Improvement Proposal 1559) is a transaction pricing mechanism that replaced the first-price auction model with a base fee that is algorithmically adjusted per block. This base fee, which is burned (destroyed), represents the minimum cost to include a transaction. Users can add a priority fee (tip) to incentivize miners (or validators post-Merge) for faster inclusion. The protocol targets an average block size of 15 million gas, but allows blocks to expand to 30 million gas, with the base fee increasing exponentially as the block exceeds the target, creating a self-regulating system.

The mechanism operates through a few key components. The base fee is calculated by the protocol based on the congestion of the previous block. If the previous block was more than 50% full, the base fee increases; if it was less full, it decreases. This base fee burn permanently removes ETH from circulation, making ETH a potentially deflationary asset. The priority fee goes directly to the block producer. Wallets can now provide users with more reliable fee estimates, as the volatile auction component is minimized and replaced by the predictable, burned base fee.

For users and developers, EIP-1559 improves the transaction experience. Instead of guessing the optimal gas price, users typically approve a max fee (maxFeePerGas) and a priority fee (maxPriorityFeePerGas). The protocol charges the sum of the current base fee and the user's priority fee, but never more than the max fee, with any excess refunded. This leads to fewer overpayments. While it doesn't eliminate high fees during extreme demand, it makes fee estimation more reliable and transaction inclusion more predictable, as blocks have expanded capacity to absorb sudden spikes.

The long-term economic implications are significant. The burning of the base fee changes Ethereum's monetary policy by introducing a deflationary counterforce to new ETH issuance. This mechanism, often called ultrasound money, reduces net inflation. Furthermore, EIP-1559 aligns incentives between users and the network; fee revenue is no longer a simple transfer to miners but partly benefits all ETH holders through reduced supply. It represents a shift from a purely incentive-driven fee market to a hybrid model with protocol-managed fundamentals and user-driven tips for priority.

EIP-1559 (Ethereum Improvement Proposal 1559) is a core protocol upgrade that fundamentally changed Ethereum's fee market mechanism. Proposed in 2019 by Ethereum creator Vitalik Buterin alongside researchers Eric Conner, Rick Dudley, Matthew Slipper, and Ian Norden, its primary goals were to improve the user experience of transaction fee estimation and to introduce a deflationary burn mechanism for the network's native currency, ETH. The proposal was formally included in the London hard fork, which activated on the Ethereum mainnet on August 5, 2021.

The historical context for EIP-1559 was a period of extreme network congestion and volatile, unpredictable gas fees. The previous auction model, where users submitted bids (gasPrice) and miners selected the highest-paying transactions, led to inefficient fee estimation and frequent overpayment. EIP-1559 introduced a new fee structure consisting of a base fee, which is algorithmically adjusted per block and burned (destroyed), and an optional priority fee (tip) paid to validators. This created a more predictable base cost for inclusion in the next block.

The implementation of EIP-1559 was a landmark event in Ethereum's history, often described as enacting a monetary policy for ETH. By burning the base fee, the network can become deflationary when usage is high, directly linking Ethereum's security spending (issuance to validators) to its economic activity. This burn mechanism has removed billions of dollars worth of ETH from circulation since its launch, fundamentally altering the asset's economic model and aligning the network's incentives more closely with its long-term holders and users.