Why might EIP-1559 make ETH a deflationary asset?

Okay, no problem. Let's talk about this in plain language.

Why EIP-1559 Might Make ETH a Deflationary Asset

To understand this, we first need to break it down into two parts: what EIP-1559 actually did, and what deflation means.

In a nutshell: EIP-1559 introduced a transaction fee burning mechanism. When the network is busy enough, the amount of ETH burned can exceed the amount of newly issued ETH, thereby reducing the total ETH supply, which leads to deflation.

Below, I'll break it down in detail, trying to make it as easy to understand as possible.

What were Ethereum's transaction fees like before EIP-1559?

You can imagine it as a chaotic auction market.

If you wanted to initiate a transaction (like a transfer or buying an NFT), you had to pay a "tip" (Gas Fee) to miners.
The higher your bid, the more willing miners were to prioritize including your transaction in a block.
This led to problems: when the network was congested, everyone would frantically outbid each other, driving fees through the roof; when the network was idle, you didn't know how much to bid, and bidding too low would leave your transaction stuck for a long time. The user experience was terrible.

Most importantly, all these fees you paid went entirely into the miners' pockets.

What revolutionary changes did EIP-1559 bring?

EIP-1559 split the previously chaotic "tip" model into two parts:

Base Fee
Priority Fee (tip)

1. Base Fee - 🔥 This is the key!

This is a system-calculated fee, a mandatory "ticket" that every transaction must pay.
Its price is not set by you or the miners, but automatically adjusts based on the congestion of the previous block. If the network is busy, the Base Fee will increase; if the network is idle, the Base Fee will decrease. This makes transaction fees more predictable.
Here's the most, most, most important part: this Base Fee doesn't go to anyone; instead, it is directly "burned"!

You can imagine that this portion of money you pay is thrown into a digital "bonfire" and disappears forever.

2. Priority Fee (tip)

This is a voluntary "tip" you give to validators (formerly miners).
If you want your transaction processed quickly, you can give a larger tip, incentivizing validators to prioritize including your transaction.
This portion of money goes directly to validators.

So, the revised transaction fee formula is: Total transaction fee = Base Fee (burned) + Priority Fee (to validators)

Why does "burning" lead to deflation?

Now let's look at the two sides of the scale:

One side is "output": To reward validators for securing the network, the Ethereum network continuously issues new ETH. This is like a money printer, slowly printing money, which leads to inflation.
The other side is "consumption": Due to EIP-1559, every transaction that occurs on the network burns a portion of ETH (the Base Fee). This is like a shredder, constantly destroying money.

The deflationary tipping point emerges:

If network transaction activity is very high, causing the amount of ETH burned to exceed the amount of newly issued ETH during the same period, then the total supply of ETH will decrease.

For example:

Let's say today the system newly issues 100 ETH as rewards for validators.
But today the network is exceptionally busy (e.g., a popular NFT launch), and the total Base Fee from all transactions burns 120 ETH.
Then today, the total ETH supply has a net reduction of 120 - 100 = 20 ETH.

When this situation continues to happen, ETH enters a state of deflation.

A Crucial Point: The Ethereum Merge

You might ask, why didn't we hear about ETH deflation before?

This is because before Ethereum completed "The Merge" (transitioning from Proof-of-Work PoW to Proof-of-Stake PoS), a very large amount of new ETH was issued (rewards for miners were high). At that time, the burning rate could hardly keep up with the issuance rate.

However, after "The Merge," the amount of newly issued ETH plummeted by about 90%!

This is like the money printer's speed suddenly being reduced by 10 times, while the shredder's speed remained unchanged. As a result, the shredder (burning) can now very easily exceed the money printer's (issuance) speed.

To summarize

EIP-1559 is like a "shredder" built into the Ethereum system; as long as people use the network, it continuously burns ETH.
The Ethereum Merge, on the other hand, set the "money printer" to a very low gear.
When the "shredder's" efficiency > the "money printer's" efficiency, the total amount of ETH will decrease, making it a deflationary asset.

This is why many people refer to ETH after the Merge as "Ultrasound Money," because its supply will not only not grow indefinitely but may actually decrease as the network ecosystem flourishes.