What is EIP-1559? How does it change Ethereum's fee market?

Okay, no problem. As a seasoned user who has been "hanging around" the Ethereum ecosystem for many years, I'm going to explain EIP-1559 in plain language: what it actually is and why it's so important.

What is EIP-1559 and how did it change Ethereum's fee market?

Simply put, EIP-1559 was a major fee mechanism reform for the Ethereum network, designed to make transaction fees (what we commonly call Gas Fees) more predictable and stable, while also introducing a burning mechanism for Ethereum (ETH).

You can think of it as a complete overhaul of the "toll system" on Ethereum's "highway."

Before EIP-1559: A chaotic "auction"

Prior to EIP-1559, Ethereum's Gas fee system was like a simple "highest bidder wins" auction.

• You are the bidder: When you wanted to send a transaction, you had to set your own bid (set the Gas Price).
• Miners were the auctioneers: Miners would look at all pending transactions and prioritize those with the highest bids to include in the next block.

This model led to several very frustrating problems:

1. Blindly guessing fees: You never knew how much to pay. If you bid too low, your transaction might wait for hours or even days; if you bid too high, you felt like a "chump" who needlessly overpaid.
2. Terrible user experience: Every transaction was nerve-wracking, requiring you to check various websites for the "suggested Gas price," which was very inconvenient.
3. Drastic price fluctuations: When the network was congested (e.g., during a hot NFT project launch), everyone would frantically raise their bids, causing Gas fees to skyrocket dozens of times within minutes, making it unaffordable for ordinary users.

EIP-1559 Arrives: A smarter, more predictable fee system

EIP-1559 completely changed this dynamic by splitting the single Gas fee into two parts: Base Fee and Priority Fee (Tip).

Your total transaction fee = Base Fee + Priority Fee

Let's look at these two components individually:

1. Base Fee

• What is it? You can think of it as the system-determined "base fuel cost" or "starting price." This price is not set by you or by miners (now validators); instead, it's automatically calculated by the Ethereum network based on current congestion.
• How does it work?
  • The network aims for each block's utilization to be around 50%.
  • If the previous block's utilization exceeded 50% (indicating the network is getting busy), then the Base Fee for the next block will automatically increase.
  • If the previous block's utilization was below 50% (indicating the network is idle), then the Base Fee for the next block will automatically decrease.
• The most crucial point: This portion of the Base Fee is not paid to miners or validators; instead, it is directly "burned." This means that this ETH is permanently removed from circulation.

2. Priority Fee (Tip)

• What is it? This part of the fee is your extra "tip" to the validators.
• Why is it needed? During periods of extreme network congestion, even if the Base Fee is high, many people are still willing to pay. In such cases, if you want your transaction processed faster, you can pay a bit more "tip" to incentivize validators to prioritize including your transaction. When the network isn't busy, you can pay a very small tip or even none at all.

What core changes did EIP-1559 bring?

This upgrade was not a minor tweak; it fundamentally altered the rules of the game:

1. Fees became predictable, user experience soared Because the Base Fee is automatically adjusted by the system, and each adjustment is limited (maximum ±12.5%), fees became very transparent and predictable. Your wallet (like MetaMask) can directly tell you the approximate Base Fee for the next block, so you no longer need to guess. You only need to decide if you want to pay a little "tip" to jump the queue.

2. Introduced ETH's burning mechanism This is the most exciting part! Since the Base Fee is burned, it means that as long as people are transacting on the Ethereum network, ETH is constantly being destroyed. This creates deflationary pressure on ETH.

   • When network activity is very frequent, and the amount of ETH burned exceeds the amount of new ETH issued through consensus rewards, the total supply of ETH will decrease, entering a "deflationary" state.
   • This is why many in the community refer to ETH after EIP-1559 as "Ultrasound Money," because it has the potential to become even scarcer than Bitcoin (Sound Money).

3. Alleviated short-term network congestion EIP-1559 also introduced elastic block sizes. While the target is 50% utilization, blocks can temporarily scale up to 100% to handle short-term demand spikes. Of course, the cost is that the Base Fee will rise rapidly, thereby using economic means to curb excessive transaction demand and help the network stabilize.

In summary

In conclusion, EIP-1559 did not promise to make Gas fees perpetually cheap (fees can still be high during extreme network congestion), but it successfully addressed the core pain points of a chaotic fee market and poor user experience, making the entire fee collection process more "civilized" and scientific. At the same time, its introduction of the burning mechanism adds a crucial element to ETH's long-term value narrative.