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 that is algorithmically adjusted per block. This base fee, which must be paid for every transaction, is burned (permanently destroyed), making Ether a potentially deflationary asset. Users can also add a priority fee (tip) to incentivize miners, now validators post-Merge, to include their transaction more quickly. The primary goals of this mechanism are to make transaction fees more predictable and to reduce fee volatility for users.
LABS
Glossary
EIP-1559
An Ethereum Improvement Proposal (EIP) that reformed the network's fee market by introducing a base fee that is burned and a variable priority fee, aiming for predictable transaction pricing and deflationary pressure on ETH.
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definition
ETHEREUM IMPROVEMENT PROPOSAL
What is EIP-1559?
EIP-1559 is a major Ethereum protocol upgrade that fundamentally reformed the network's transaction fee market and monetary policy.
The mechanism operates through a block-by-block adjustment of the base fee, targeting an average block utilization of 50%. If the previous block was more than 50% full, the base fee increases; if it was less full, the base fee decreases. This creates a self-regulating fee market that responds dynamically to network demand. The introduction of a gas target (replacing the old gas limit) and a new transaction type with explicit max_fee_per_gas and max_priority_fee_per_gas fields gives users clearer expectations about the maximum they will pay.
A critical economic consequence of EIP-1559 is the burning of the base fee. By permanently removing this Ether from circulation, the upgrade counteracts Ether issuance, applying deflationary pressure. This transforms Ether's monetary policy, often referred to as ultrasound money, as the net supply can decrease during periods of high network usage. The burn mechanism effectively redirects value that was previously paid entirely to miners back to all Ether holders by reducing supply.
EIP-1559 was activated on the Ethereum mainnet in the London hard fork on August 5, 2021. Its implementation was a foundational change that improved user experience and set the stage for Ethereum's transition to proof-of-stake. While it does not inherently lower fees during peak demand—fees are still a function of block space scarcity—it makes fee estimation more reliable and the fee market more efficient, reducing the inefficiencies and overpayment common in auction-based systems.
etymology
PROTOCOL EVOLUTION
Etymology & Origin
The genesis of EIP-1559 lies in a multi-year effort to fundamentally reform Ethereum's transaction fee market, moving beyond the limitations of its original first-price auction model.
EIP-1559 (Ethereum Improvement Proposal 1559) was authored by Vitalik Buterin, Eric Conner, Rick Dudley, Matthew Slipper, and Ian Norden. It was first proposed in April 2019 as a comprehensive solution to the user experience and economic problems of the existing gas auction system. The proposal's number, 1559, is simply its sequential identifier in the EIP repository, following the standard numbering convention for all Ethereum improvement proposals.
The core design was a direct response to the inefficiencies of the first-price auction, where users had to guess the appropriate gas price, leading to frequent overpayment and network congestion volatility. The architects sought to create a more predictable fee mechanism with a base fee that would be algorithmically adjusted per block based on network demand. A critical and revolutionary addition was the burning of this base fee, permanently removing ETH from circulation—a feature that fundamentally altered Ethereum's monetary policy.
The path to implementation was a long and rigorous process of community debate, economic modeling, and testing on various testnets. Key concerns addressed included miner incentives (via an optional priority fee or "tip"), potential attack vectors, and the complexity of integrating the change with existing wallets and infrastructure. Its eventual activation in the London hard fork on August 5, 2021, marked one of the most significant non-consensus upgrades in Ethereum's history, setting the stage for its transition to Proof-of-Stake.
how-it-works
ETHEREUM FEE MARKET MECHANISM
How EIP-1559 Works
EIP-1559 is a major Ethereum protocol upgrade that fundamentally reformed the network's transaction fee model, introducing a new pricing mechanism and a deflationary burn.
EIP-1559 (Ethereum Improvement Proposal 1559) is a transaction pricing mechanism that replaces the traditional first-price auction with a base fee and priority fee system. The base fee, which is algorithmically adjusted per block based on network demand, is the minimum cost required for a transaction to be included. This fee is burned (permanently removed from circulation), making ETH a potentially deflationary asset. Users can add a priority fee (tip) to incentivize miners or validators for faster inclusion. This structure aims to make transaction fees more predictable and reduce fee volatility.
The mechanism operates through a variable block size. Instead of a fixed gas limit, blocks have a target size of 15 million gas and a maximum limit of 30 million gas. When the previous block exceeds the target, the base fee increases; when it is below, the base fee decreases. This creates a negative feedback loop that automatically regulates network congestion. The base fee adjustment is calculated directly by the protocol, removing the need for users to guess the optimal gas price, a common pain point in the old auction model.
For users and wallets, EIP-1559 simplifies the fee estimation process. Wallets can now reliably suggest a total max fee (base fee + priority fee) with high confidence of inclusion in the next block or two. The burning of the base fee alters Ethereum's monetary policy, as the net ETH issuance is reduced by the amount burned. This fee burn is a critical component of Ethereum's shift to a deflationary or low-inflation economic model post-Merge, often referred to as ultrasound money.
The implementation required a hard fork, known as the London Upgrade, which went live on the Ethereum mainnet in August 2021. It was a foundational change that paved the way for further scalability improvements. While EIP-1559 improved user experience and fee predictability, it does not inherently lower fees during periods of extreme demand; high network usage still results in a high base fee and competitive priority tips. Its primary success is in creating a more efficient and transparent fee market.
key-features
EIP-1559
Key Features & Mechanics
EIP-1559 is a major Ethereum fee market upgrade that replaced first-price auctions with a base fee and priority fee system, introducing predictable costs and a deflationary mechanism.
01
Base Fee
The base fee is the minimum gas price required for a transaction to be included in a block. It is algorithmically adjusted block-by-block based on network congestion and is burned (destroyed) after being paid, permanently removing ETH from circulation. This creates a predictable, market-rate fee floor.
02
Priority Fee (Tip)
The priority fee (or tip) is an optional fee paid directly to the block proposer (validator) to incentivize them to prioritize a transaction's inclusion. This is the only portion of the total fee that miners/validators receive. Users set this to expedite transactions during high demand.
- Total Fee = Base Fee + Priority Fee
03
Fee Burning Mechanism
A core deflationary component where the base fee for every transaction is permanently destroyed (burned). This reduces the net ETH supply, counteracting issuance from block rewards. During periods of high network usage, the burn rate can exceed new issuance, making ETH a potentially deflationary asset.
04
Block Size & Target
EIP-1559 introduced variable-sized blocks. Instead of a fixed gas limit, it uses a target block size (15M gas) and a maximum block size (30M gas). The base fee adjusts up if the previous block was above the target, and down if it was below, creating a self-regulating system for block congestion.
05
User Experience Improvements
The upgrade simplified fee estimation for wallets and users. Instead of guessing the optimal gas price in an auction, users are presented with a reliable base fee estimate and can add a tip for speed. Most wallets now offer preset options like "slow," "average," and "fast" based on these mechanics.
06
Related Concept: Max Fee
The max fee (or maxFeePerGas) is the maximum total amount a user is willing to pay per gas unit (Base Fee + Priority Fee). The wallet automatically deducts only the actual current base fee plus the user's specified tip, refunding any difference. This prevents overpayment in a volatile fee market.
ETHEREUM FEE MARKET
Pre vs. Post EIP-1559 Fee Structure
A comparison of the core mechanics and economic properties of Ethereum's transaction fee market before and after the implementation of EIP-1559.
| Feature | Pre-EIP-1559 (First-Price Auction) | Post-EIP-1559 (Base + Priority Fee) |
|---|---|---|
Primary Fee Mechanism | First-price sealed-bid auction | Fixed base fee per block + priority fee (tip) |
Fee Components | Single gas price (gwei) bid | Base fee (burned) + Priority fee (to miner/validator) |
Fee Predictability | Low (volatile, user-estimated) | Higher (algorithmic base fee, predictable) |
Block Size | Fixed gas limit (e.g., 15M gas) | Variable target (15M) and maximum (30M) gas limit |
Fee Sink (Burn) | None (full fee to miner) | Base fee is burned (permanently removed from supply) |
User Experience | Complex (manual gas estimation) | Simplified (wallet can suggest total fee) |
Network Congestion Response | Inefficient (fee spikes) | Automatic (base fee adjusts per block) |
Economic Security | Inflationary (miners receive all fees) | Less inflationary (base fee burn offsets issuance) |
economic-impact
ETHEREUM IMPROVEMENT PROPOSAL
Economic Impact & Tokenomics
EIP-1559 is a fundamental reform of Ethereum's transaction fee market, introducing a new fee-burning mechanism that fundamentally altered the network's monetary policy and economic security model.
EIP-1559 is an Ethereum protocol upgrade that fundamentally restructured the network's transaction fee mechanism, replacing a simple first-price auction with a base fee that is algorithmically adjusted per block and subsequently burned, plus a priority fee (tip) for miners/validators. This design aims to make gas fees more predictable and to reduce fee volatility for users. The most significant economic consequence is the introduction of a deflationary pressure on ETH's supply, as the base fee is permanently removed from circulation, directly linking network usage to the token's scarcity.
The economic impact of the base fee burn is profound. During periods of high network congestion, the burn rate can exceed the rate of new ETH issuance from block rewards, making ETH a net-deflationary asset. This transforms ETH from a purely utility token into one with a potential value-accrual mechanism similar to a share in the network's economic activity. Analysts often refer to this as Ethereum's "ultrasound money" property, contrasting it with fixed-supply or inflationary models. The burn mechanism directly ties the cost of using the Ethereum virtual machine (EVM) to a reduction in ETH supply.
For network security, EIP-1559 decouples miner/validator rewards from transaction fee volatility. Under the old system, security funding from fees was highly variable. Now, the predictable block subsidy (new issuance) remains the primary security budget, while the variable priority fee provides supplemental rewards. This creates a more stable floor for security spending. However, in the long term, as Ethereum transitions to proof-of-stake and block subsidies diminish, the sustainability of security will rely more heavily on the value accrued through fee burning, making the overall economic health of the network paramount.
The upgrade also introduced a new transaction type with explicit max_fee and max_priority_fee fields, giving users better tools to manage costs. Wallets can now estimate fees more reliably by observing the recent trend of the base fee. While it doesn't cap maximum fees during extreme demand—users must still outbid each other with priority fees—it has generally led to a more efficient fee market. This user experience improvement, combined with the deflationary burn, is considered a key step in Ethereum's broader roadmap, often referred to as The Merge and The Scourge, towards scalable and sustainable economics.
user-experience
EIP-1559
User & Developer Experience
Ethereum Improvement Proposal 1559 fundamentally reformed Ethereum's fee market, replacing first-price auctions with a hybrid system of a base fee and a priority fee to create a more predictable user experience.
01
Base Fee
The base fee is the mandatory, algorithmically determined portion of the transaction fee that is burned (destroyed) from circulation. It adjusts per block based on network congestion, targeting 50% block fullness. This creates predictable fee estimation and reduces fee volatility.
- Dynamic Adjustment: Increases if the previous block was >50% full, decreases if <50% full.
- Burned: Removed from the Ethereum supply, making ETH a potentially deflationary asset.
- User Benefit: Provides a stable, predictable floor for transaction costs.
02
Priority Fee (Tip)
The priority fee (or tip) is an optional fee paid directly to the block validator to incentivize them to include a transaction more quickly. It operates on top of the base fee.
- Purpose: Used to prioritize transactions when blocks are full.
- Flexibility: Users can set a higher tip for urgent transactions (e.g., arbitrage, NFT minting) or a lower/zero tip for non-urgent ones.
- Developer Impact: Wallets and dApps must now handle two fee components instead of one.
03
Fee Estimation & UX
EIP-1559 simplified fee estimation for wallets and users. Instead of guessing the optimal gas price in a volatile auction, wallets can now reliably suggest a total max fee (base fee + priority fee).
- Max Fee: The maximum a user is willing to pay. If the base fee is lower at execution, the user only pays (base fee + tip), receiving a refund on the difference.
- Wallet Integration: Major wallets (MetaMask, Rainbow) updated interfaces to show the base fee and allow separate tip configuration.
- Result: Reduced failed transactions and less overpaying.
04
Block Size & Throughput
EIP-1559 introduced a flexible block size. Instead of a fixed gas limit, blocks can expand up to 2x the target size (from ~15M to ~30M gas) during high demand, with the base fee increasing sharply as a congestion control mechanism.
- Target vs. Limit: A target of 15M gas and a hard limit of 30M gas per block.
- Throughput Spike: Allows temporary throughput increases to absorb transaction spikes, smoothing demand.
- Fee Pressure: The exponentially rising base fee for oversized blocks naturally discourages sustained congestion.
05
ETH Burn & Monetary Policy
A core economic change of EIP-1559 is the burning of the base fee. This removes ETH from permanent circulation, contrasting with the previous system where all fees were paid to miners.
- Deflationary Pressure: When network usage is high, the burn rate can exceed new ETH issuance, making ETH a net-deflationary asset.
- "Ultra Sound Money": This burn mechanism is often referred to as Ethereum's transition to a more deflationary monetary policy.
- Example: In periods like the 2021 NFT boom, daily ETH burn temporarily exceeded 10,000 ETH.
06
Validator Incentives
EIP-1559 changed the reward structure for block producers (now validators post-Merge). Their fee revenue comes solely from the priority fee and block rewards, not the entire transaction fee.
- Revenue Shift: Validators are incentivized by tips and MEV, not base fee auctions.
- MEV Impact: This increased the relative importance of Maximal Extractable Value (MEV) as a revenue source for validators.
- Stability: The change aims to make validator rewards less volatile and less dependent on pure network congestion.
ecosystem-usage
EIP-1559
Ecosystem Adoption & Layer 2 Impact
EIP-1559 fundamentally changed Ethereum's fee market by introducing a base fee that is burned and a variable priority fee for miners/validators. This mechanism impacts Layer 2 scaling solutions, network security, and overall economic policy.
01
Base Fee & Fee Burning
EIP-1559's core mechanism replaces first-price auctions with a protocol-determined base fee that adjusts per block based on network congestion. This base fee is permanently burned (destroyed), removing ETH from circulation. This creates a deflationary pressure on ETH supply, directly linking network usage to the asset's scarcity. The burn rate is a key metric for analyzing Ethereum's monetary policy post-merge.
02
Priority Fee (Tip)
To incentivize block producers to include a transaction, users can add a priority fee (tip) on top of the burned base fee. This tip is paid to the miner (pre-merge) or validator (post-merge). The tip is crucial during high congestion, as block space is allocated to transactions offering the highest tips. This creates a more predictable and efficient auction for inclusion, separate from the fee for network usage (the base fee).
03
Impact on Layer 2 Economics
EIP-1559 significantly affects Layer 2 (L2) rollup economics like Optimism and Arbitrum. L2s batch transactions and post data or proofs to Ethereum L1, paying the base fee for this calldata. High L1 base fees directly increase L2 operating costs, which are often passed to users. This makes the efficiency of L2 data compression (e.g., using call data vs. blobs with EIP-4844) critical for maintaining low fees. The base fee burn also means L2 activity contributes to ETH's deflationary burn.
04
User Experience & Fee Predictability
A major goal of EIP-1559 was improving fee predictability. Wallets can now estimate the base fee more reliably for the next block, reducing failed transactions from underbidding. Users set a max fee (cap) and a priority fee, paying only the (base fee + priority fee) or less if the base fee drops. This replaced the guesswork of gas price auctions with a system where users are more often refunded the difference between their max fee and the actual fee.
05
Validator Economics Post-Merge
After The Merge transitioned Ethereum to Proof-of-Stake, the priority fee and MEV (Maximal Extractable Value) rewards became the variable, transaction-based component of validator rewards, supplementing static issuance rewards. The burning of the base fee reduces net ETH issuance. In times of high network usage, the burn can exceed new issuance, making ETH deflationary. This changes the security budget calculus, tying validator rewards more closely to organic network demand.
06
Block Size & Throughput
EIP-1559 introduced a flexible block size. Instead of a fixed gas limit, blocks have a target size (15M gas) and a maximum limit (30M gas). The base fee adjusts to keep block size near the target. Blocks can temporarily expand up to 2x the target during spikes, increasing throughput and smoothing transaction inclusion. This elastic block sizing helps prevent sudden, extreme congestion and fee spikes, providing more consistent performance under variable load.
EIP-1559
Common Misconceptions
Ethereum Improvement Proposal 1559 fundamentally changed Ethereum's fee market, but its mechanics are often misunderstood. This section clarifies the most frequent points of confusion.
No, EIP-1559 was not designed to make gas fees cheaper; its primary goal was to make transaction fee estimation and payment more predictable and efficient. Gas fees are determined by network demand for block space, which is driven by user activity. EIP-1559 introduced a base fee that is algorithmically adjusted per block based on congestion, but this fee is burned, not paid to miners/validators. Users can still pay a priority fee (tip) to incentivize faster inclusion. While the mechanism can reduce fee volatility, high demand will still result in high base fees.
EIP-1559
Frequently Asked Questions
Common questions about Ethereum's EIP-1559 upgrade, which fundamentally changed the network's fee market and monetary policy.
EIP-1559 is an Ethereum Improvement Proposal that reformed the network's transaction fee mechanism by introducing a base fee that is burned and a priority fee for miners/validators. The protocol dynamically adjusts the base fee per block based on network congestion, aiming for a target block size of 15 million gas. Users submit a max fee they are willing to pay and a priority fee (tip). The base fee is automatically set and burned, removing it from circulation, while the tip is paid to the block producer. This creates a more predictable gas price auction and introduces a deflationary pressure on ETH.
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