Inclusion Fee

An inclusion fee is a payment made by a transaction sender to a network validator (e.g., a miner or sequencer) to incentivize the inclusion of that transaction in the next block. It is distinct from the base fee or gas fee required for network execution; instead, it acts as a priority fee or tip to expedite processing, especially during periods of high network congestion. This mechanism is a core component of transaction fee markets on blockchains like Ethereum, where users bid for limited block space.

The fee functions as a bid in an auction. Validators, who are economically motivated to maximize their revenue from a block, typically select transactions with the highest inclusion fees first. This creates a competitive environment where users can pay more to reduce their wait time or latency. On Ethereum post-EIP-1559, this is formally known as the priority fee, which is paid directly to the validator on top of the base fee that is burned. Other networks may use similar concepts under different names, such as tip or miner extractable value (MEV)-related payments.

Strategically setting an inclusion fee requires estimating network demand. Wallets and users often rely on fee estimation algorithms that suggest optimal fees based on recent block history and pending transaction pools. Paying too little may result in a transaction being stuck or delayed indefinitely, while paying excessively is economically inefficient. In advanced use cases, such as arbitrage or liquidations, bots may submit transactions with very high inclusion fees to ensure they are processed in a specific order, directly impacting the MEV landscape.

The economic design of inclusion fees directly influences network performance and user experience. A well-functioning fee market ensures that block space is allocated efficiently to those who value it most, while providing validators with predictable rewards. However, it can also lead to volatile costs for users during demand spikes. Understanding this fee component is crucial for developers building transaction services, analysts modeling blockchain costs, and users seeking reliable transaction finality.

An inclusion fee is a payment, typically denominated in the network's native token, that a user attaches to a transaction to incentivize a validator or block producer to include it in the next block. This fee is distinct from a gas fee (which compensates for computational work) and is fundamentally a priority fee or tip that competes for block space during periods of network congestion. On networks like Ethereum, this is often referred to as the priority fee component within the total max fee per gas, while Solana uses the term priority fee directly to achieve the same outcome.

The fee's primary function is to solve the block space allocation problem. Validators, who are economically motivated to maximize their rewards, will naturally order the mempool (the pool of pending transactions) by the offered inclusion fee, selecting the highest-paying transactions first. This creates a fee market where users bid against each other for timely execution. The mechanism ensures that the network can process high-value or time-sensitive transactions promptly, even when overall demand is high, without requiring manual intervention from validators.

From a technical perspective, the inclusion fee is usually specified as an additive amount on top of a base protocol fee. For example, in Ethereum's EIP-1559 fee model, users set a maxPriorityFeePerGas. The validator receives this amount, while the baseFeePerGas is burned by the protocol. This design helps estimate costs more predictably. The fee is only paid upon successful inclusion; if a transaction is dropped from the mempool, the user is not charged.

Strategically, users and automated systems (like wallets and dApps) must estimate an appropriate inclusion fee based on real-time network conditions. They often rely on fee estimation algorithms that analyze recent block history and current mempool density. Setting the fee too low risks significant delays, while setting it too high results in unnecessary expenditure. This estimation is a key consideration for arbitrage bots, NFT mints, and other operations where transaction timing is financially critical.

The broader implications of inclusion fees touch on network accessibility and decentralization. A consistently high fee market can price out certain use cases and users, leading to discussions about scalability solutions like layer 2 rollups and sidechains. Furthermore, the design of the fee mechanism—whether it is paid to validators or burned—directly impacts the tokenomics and security budget of the underlying blockchain protocol.

Prior to EIP-1559, Ethereum used a first-price auction model for transaction fees. Users submitted bids (the gasPrice) in a blind auction, guessing the minimum price a miner would accept to include their transaction in the next block. This led to significant inefficiencies: users consistently overpaid due to fear of their transaction being stuck, while others underpaid and experienced long delays. The system created a poor user experience and unpredictable fee volatility, as the market had no clear price signal beyond the highest bid in the previous block.

EIP-1559, implemented in the London upgrade (August 2021), overhauled this mechanism by introducing a base fee and an inclusion fee. The base fee is a protocol-determined minimum cost per unit of gas, calculated algorithmically based on network congestion from the previous block and burned (permanently removed from circulation). Users then optionally add a priority fee (tip) to incentivize miners for faster inclusion. This creates a hybrid fee market where the base fee adjusts dynamically to target half-full blocks, providing more predictable long-term fee trends.

The economic implications of EIP-1559 are profound. By burning the base fee, the protocol introduces a deflationary pressure on ETH, as the currency is permanently removed from supply with every transaction. This transforms ETH from a pure medium of exchange into an asset with a potential burn rate tied directly to network usage. The separation of fees also improves fee estimation for wallets, as users only need to estimate the variable priority fee, while the base fee is known in advance.

For block builders (miners, later validators), the revenue model shifted. Under the first-price auction, the entire gasPrice went to the miner. Post-EIP-1559, they only receive the priority fee (the tip), while the base fee is burned. This aligns miner incentives with network health long-term, as a sustainably funded protocol is more valuable than short-term fee extraction. The upgrade also introduced a flexible block size limit, allowing temporary expansion during high demand, which smooths out transaction throughput and reduces extreme fee spikes.

The transition exemplifies a key evolution in blockchain design: moving from simple cryptographic auctions to sophisticated cryptoeconomic mechanisms that use algorithmic feedback and tokenomics to improve user experience and system stability. While EIP-1559 solved major pain points of the first-price auction, the search for optimal fee markets continues, with concepts like proposer-builder separation (PBS) addressing downstream complexities in block construction and MEV.