EIP-1559

EIP-1559 is an Ethereum Improvement Proposal that implemented a new transaction pricing mechanism, replacing the traditional first-price auction model with a base fee and priority fee system. The protocol itself now sets a base fee for inclusion in the next block, which is algorithmically adjusted up or down based on network congestion. Users can add an optional priority fee (tip) to incentivize miners or validators to prioritize their transaction. Crucially, the base fee is burned (destroyed), permanently removing ETH from circulation, while the priority fee is paid to the block producer.

The primary goals of EIP-1559 are to improve the user experience and predictability of transaction fees. Under the old system, users had to guess the appropriate gas price, often leading to overpayment or long delays. With EIP-1559, wallets can reliably estimate the base fee, making costs more transparent. The mechanism also aims to stabilize block sizes by targeting 50% utilization; when blocks are more than half full, the base fee increases for the next block, and when they are less than half full, it decreases, creating a self-regulating market for block space.

A critical economic consequence of EIP-1559 is the introduction of a deflationary pressure on ETH via the base fee burn. By destroying the base fee portion of every transaction, the net ETH supply increases at a slower rate, and during periods of high network activity, it can become net deflationary. This burn mechanism fundamentally alters Ethereum's monetary policy, partially decoupling miner/validator rewards from transaction fee revenue and making ETH a potentially yield-bearing asset through reduced supply growth.

EIP-1559 was activated on the Ethereum mainnet in August 2021 as part of the London network upgrade. Its implementation required significant changes to the protocol's consensus and execution layers. While it has successfully made fee estimation more reliable, it does not inherently lower fees; during extreme demand, both the base fee and priority tips can still rise significantly. The proposal is considered a foundational change that paved the way for Ethereum's transition to proof-of-stake by restructuring its fee market dynamics.

The proposal, titled "Fee market change for ETH 1.0 chain", was authored primarily by Ethereum researchers and developers including Vitalik Buterin, Eric Conner, Rick Dudley, Matthew Slipper, and Ian Norden. It was assigned the identifier EIP-1559 in the Ethereum Improvement Proposal repository, following the sequential numbering system for all protocol change suggestions. The 'EIP' prefix denotes its status as a core, network-upgrade-level proposal, as opposed to an ERC (Ethereum Request for Comment) for application standards.

The core economic mechanism, a base fee that is algorithmically adjusted and burned, was designed to address critical flaws in the original auction system. Prior to EIP-1559, users bid via a gasPrice in a blind, first-price auction, leading to volatile and often inefficient fee estimation. The new model introduced predictable base fee periods and a separate priority fee (tip) for miners, now validators. The deliberate burning of the base fee, a deflationary mechanism, was a direct response to concerns about miner extractable value (MEV) and long-term ETH issuance.

EIP-1559 was activated on the Ethereum network on August 5, 2021, as a central component of the London network upgrade. Its implementation was one of the most significant and contentious changes to Ethereum's core economics prior to The Merge, fundamentally altering the relationship between transaction fees, network security, and ETH's monetary policy. The proposal's success paved the way for further fee market refinements in a post-Merge, proof-of-stake context.

EIP-1559 is a core protocol upgrade that replaced Ethereum's first-price auction fee model with a hybrid system of base fees and priority tips. The key innovation is a base fee, a mandatory, algorithmically determined fee for inclusion in the next block, which is burned (permanently removed from circulation). Users can add a priority fee (or "tip") to incentivize miners—and later, validators—to prioritize their transaction. This mechanism aims to make transaction fees more predictable and reduce fee volatility during periods of high network congestion.

The proposal introduced a new block structure where each block has a target size of 15 million gas and a maximum size of 30 million gas. The base fee adjusts dynamically block-by-block based on the gas used in the previous block relative to the target. If a block is more than 50% full, the base fee increases; if it is less full, it decreases. This creates a negative feedback loop that pushes block usage toward the target, smoothing out demand spikes. The fee burn of the base fee also introduces a deflationary pressure on ETH's supply, a concept often referred to as ultrasound money.

For users and wallets, EIP-1559 simplifies the fee estimation process. Instead of guessing the optimal gas price in a volatile auction, users are quoted a total max fee, which is the sum of the current network base fee and their chosen priority fee. The protocol only charges the actual fee, which is the base fee at inclusion plus the tip, refunding any difference. This creates a better user experience and reduces overpayment. Wallets can now provide more reliable estimates, displaying the likely base fee for the next few blocks.

The implementation of EIP-1559 had significant economic and security implications. The burning of the base fee removes ETH from circulation, which can counteract issuance from block rewards under certain network conditions. This changes Ethereum's monetary policy and miner/validator economics, as they now rely solely on priority fees and block rewards for revenue. The mechanism also improves network security during chain reorganizations by making it economically irrational for validators to attempt reorgs for fee extraction, as the base fees from orphaned blocks are still burned.

EIP-1559 is an Ethereum Improvement Proposal that fundamentally redesigned the network's transaction fee mechanism, replacing the simple first-price auction with a hybrid system comprising a base fee and a priority fee (tip). The base fee, which is algorithmically adjusted per block based on network congestion, is burned (permanently removed from circulation), while the priority fee is paid to the block proposer. This creates a more predictable fee market for users and introduces a deflationary pressure on ETH's supply.

The mechanism operates through a target block size of 15 million gas. When a block is more than 50% full, the base fee increases for the next block; when it is less than 50% full, the base fee decreases. Users set a max fee (maxFeePerGas) and a priority fee (maxPriorityFeePerGas) for their transactions. The protocol automatically charges the current base fee plus the user's priority tip, up to their specified maximum, with any excess refunded. This eliminates the guesswork of bidding in an auction.

Key consequences of EIP-1559 include enhanced user experience through predictable base fees, reduced fee volatility, and the ETH burn. The burn mechanism, often called "ultrasound money," removes ETH from circulation with every transaction, making the net issuance of Ethereum dependent on network activity. This stands in contrast to the previous purely inflationary model where all fees were paid to miners.

For validators (post-Merge), the economic incentive shifts from capturing the entire transaction fee to earning only the priority fee. While this reduces their direct fee revenue, it is offset by MEV (Maximal Extractable Value) opportunities and the overall security budget from block rewards and issuance. The base fee burn also aligns validator incentives with network efficiency, as they benefit from a scarcer, potentially more valuable ETH.

In practice, wallets and users interact with EIP-1559 through new transaction types (Type 2). Legacy transactions (Type 0) are still supported but are generally more expensive. Developers must structure transactions using the new fields—maxFeePerGas and maxPriorityFeePerGas—instead of a single gasPrice. This update is a foundational change that makes Ethereum's economic policy more transparent and its fee market more efficient for end-users.

EIP-1559 is an Ethereum Improvement Proposal that fundamentally restructured the network's transaction fee mechanism, introducing a base fee that is algorithmically adjusted and burned, alongside a priority fee for miners/validators. Proposed by Vitalik Buterin and others in 2019, its primary goals were to improve user experience with more predictable gas fees, reduce fee volatility, and alter Ethereum's monetary policy by burning a portion of transaction fees, making ETH a potentially deflationary asset. The proposal was formally codified as EIP-1559 and became a cornerstone of the London network upgrade in August 2021.

The implementation introduced a new transaction type where users specify a max fee and a max priority fee. The protocol itself calculates the current base fee per gas, which must be paid for a transaction to be included in the next block and is subsequently destroyed (burned). The difference between the max fee and the base fee is the priority fee, which goes to the block proposer. This design replaced the traditional first-price auction model, where users submitted blind bids, with a system where most of the fee is set by the protocol based on network congestion, leading to more efficient block space utilization and less fee overpayment.

A critical technical component is the variable block size. EIP-1559 allows blocks to expand up to twice the target size (from 15 million to 30 million gas) during high demand, with the base fee increasing exponentially for each subsequent block until usage falls back to the target. This creates a more responsive and elastic fee market. The fee burn mechanism, where the base fee is permanently removed from circulation, directly reduces ETH supply, contrasting with the previous model where all fees were paid to miners. This burn is a key part of Ethereum's transition to a proof-of-stake economic model.

The deployment of EIP-1559 was a major milestone, requiring coordinated upgrades across all Ethereum clients. Its success paved the way for subsequent upgrades like The Merge. In practice, while it has made fee estimation more reliable, periods of extreme demand can still lead to high base fees. The burn has also had a significant macroeconomic impact, with billions of ETH destroyed since activation, often exceeding new issuance during high-usage periods, a state colloquially referred to as ultrasound money.