Crypto Gloss

EIP-1559

EIP-1559 (Ethereum Improvement Proposal 1559) is one of the most significant changes in Ethereum’s history. Implemented in the London hard fork on August 5, 2021, it replaced Ethereum’s first-price auction gas fee model with a new mechanism consisting of a base fee and an optional priority fee (tip). The base fee is burned — permanently removed from ETH supply — rather than paid to miners. This introduced a deflationary mechanic to ETH’s economics and dramatically improved the user experience of paying for transactions.

The Old System: First-Price Auction (Pre-1559)

Before EIP-1559, Ethereum used a first-price auction for transaction fees:

  • Users set any gas price they were willing to pay
  • Miners included the highest-paying transactions first
  • Users had to guess the “right” price — overpay and waste money; underpay and wait hours
  • Gas prices were volatile and unpredictable: from <1 Gwei in quiet periods to 500+ Gwei during peaks (NFT launches, DeFi events)

This created poor UX — wallets showed unreliable estimates and users frequently either overpaid or had transactions stuck for hours.

The New System: Base Fee + Tip

EIP-1559 introduced two components:

1. Base Fee:

  • A minimum price required to include a transaction in a block
  • Set by the protocol algorithmically — not by users
  • Adjusts ±12.5% per block based on how full the previous block was
  • Burned completely — does not go to miners/validators
  • Makes gas price more predictable (users can see current base fee and predict next few blocks)

2. Priority Fee (Tip):

  • Optional additional payment to incentivize validators to include your transaction faster
  • Goes to the miner/validator (replaced the old entire miner reward for fee inclusion)
  • Users can set this based on how urgently they need the transaction included

3. Max Fee:

  • Users set a maximum gas price they’ll pay; the actual charge is base fee + tip, never exceeding the max

The ETH Burn Mechanism

The base fee burning is the most economically significant aspect of EIP-1559. Since all base fees are burned:

  • High network usage → high base fee → large amounts of ETH burned per block
  • During peak periods (NFT launches, DeFi events), more ETH is burned than is issued to validators
  • Net result: ETH becomes deflationary — supply decreases during high-activity periods

Key milestone: Ethereum became net deflationary after The Merge (September 2022) combined EIP-1559’s burn with reduced issuance from proof-of-stake. As of 2024, millions of ETH had been burned since EIP-1559 implementation.

Track ETH burn live at: ultrasound.money

Impact on User Experience

EIP-1559 significantly improved fee predictability:

  • Wallets now show current base fee — users can estimate costs accurately
  • Transactions are rarely stuck (base fee adjusts automatically)
  • Overpayment eliminated — unused portion of max fee is refunded
  • Failed transactions still burn base fee in some cases (the transaction was included but reverted)

Miner Resistance

EIP-1559 was controversial among miners because it reduced their fee revenue:

  • Before 1559: miners kept 100% of transaction fees (often exceeding block rewards during peaks)
  • After 1559: miners only receive the tip (priority fee); base fee is burned
  • Some mining pools threatened a “show of force” hash rate attack; it never materialized
  • Miners ultimately accepted it; ETH moved to PoS in 2022 (making miners irrelevant)

Related Terms

Sources

  1. Buterin, V. et al. (2019). “EIP-1559: Fee Market Change for ETH 1.0 Chain.” Ethereum Improvement Proposals, GitHub, April 13, 2019.
  1. Roughgarden, T. (2021). “Transaction Fee Mechanism Design for the Ethereum Blockchain: An Economic Analysis of EIP-1559.” Proceedings of the 3rd ACM Conference on Advances in Financial Technologies (AFT 2021).
  1. Liu, Y. et al. (2022). “Empirical Analysis of EIP-1559: Transaction Fees, Waiting Times, and ether Burning.” arXiv:2201.05574.
  1. Leonardos, S. et al. (2021). “Dynamical Analysis of the EIP-1559 Ethereum Fee Market.” Proceedings of the 3rd ACM Conference on Advances in Financial Technologies.
  1. Ethereum Foundation (2021). “London Upgrade Announcement.” ethereum.org blog, August 5, 2021.