#explain-card ## Overview **[[Ethereum]] Improvement Proposal 1559 ([[EIP-1559]])** is a major upgrade to Ethereum's transaction fee mechanism, implemented as part of the London [[Hard fork|Hard Fork]] in August 2021. It fundamentally changed how [[Gas|gas]] fees are calculated and handled, aiming to improve user experience by making fees more predictable and introducing a deflationary aspect to ETH through fee burning. - **Problem Solved:** Addressed issues with the previous first-price auction fee model, which led to volatile and unpredictable [[Gas price|gas prices]], overpayment, and a poor user experience. It also aimed to better align ETH's monetary policy with network usage. - **Value Proposition:** Introduced a [[Base|base]] fee that adjusts algorithmically based on network congestion, a priority fee (tip) for [[Miner|miners]]/[[Validator|validators]], and the burning of the base fee, making ETH potentially deflationary. - **Status:** Live on Ethereum since the London Hard Fork (August 5, 2021). ## Key Mechanisms EIP-1559 introduced a new fee structure consisting of two main components: 1. **Base Fee (`baseFeePerGas`):** - This is a mandatory fee for including a transaction in a [[Block|block]]. - It is determined algorithmically by the protocol based on network congestion. If blocks are more than 50% full (the target [[Gas limit|gas limit]] per block is 15 million, but blocks can expand up to 30 million gas), the base fee increases. If blocks are less than 50% full, the base fee decreases. - The base fee is **burned** (destroyed), meaning it is removed from circulation. This acts as a deflationary pressure on ETH supply, as more ETH is burned when network activity is high. 2. \*\*Priority Fee (`maxPriorityFeePerGas` or Tip): - This is an optional fee paid directly to miners (pre-Merge) or validators (post-Merge) to incentivize them to include a transaction in a block. - Users can set a tip to prioritize their transactions, especially during times of high congestion. Additionally, users specify a **Max Fee (`maxFeePerGas`):** _ This is the absolute maximum amount a user is willing to pay per unit of gas for their transaction, including both the base fee and the priority fee. _ If the `baseFeePerGas` plus the `maxPriorityFeePerGas` exceeds the `maxFeePerGas`, the transaction will wait until the base fee drops or the user increases their max fee. \* Users are refunded the difference between `maxFeePerGas` and (`baseFeePerGas` + `maxPriorityFeePerGas`). ## Impact and Benefits - **Fee Predictability:** While not fixing gas prices, EIP-1559 makes them more predictable by having the base fee adjust smoothly based on demand, rather than relying purely on a blind auction. - **Reduced Overpayment:** Users can set a `maxFeePerGas` they are comfortable with, knowing they won't pay more than the prevailing base fee plus their chosen tip. - **ETH Burning (Deflationary Pressure):** The burning of the base fee directly links network usage to a reduction in ETH supply. During periods of high network demand, more ETH can be burned than is issued through block rewards (especially post-Merge), potentially making ETH a deflationary asset. - **Improved User Experience:** [[Wallet|Wallets]] can more easily estimate appropriate fees. ## Considerations - **Doesn't Lower Gas Fees Directly:** EIP-1559 is not primarily designed to lower gas fees, but rather to make them more predictable and efficient. High demand will still lead to high base fees. - **Elastic Block Sizes:** Blocks can temporarily expand up to twice the target gas limit to absorb demand spikes, helping to smooth out fee volatility. ## Related Concepts - Ethereum - Gas