EIP-1559
An Ethereum upgrade that restructured transaction fees into a burned base fee that adjusts automatically with network demand, plus an optional priority fee tip to the block producer.
EIP-1559 is an Ethereum Improvement Proposal, activated in 2021, that restructured how Ethereum's transaction fee market (see Kaavon's "Transaction Fee Market" glossary definition) works, replacing a simple first-price auction model with a two-part fee structure: a base fee (see Kaavon's "Base Fee" glossary definition) that adjusts automatically up or down based on how full recent blocks have been, and an optional priority fee (see Kaavon's "Priority Fee" glossary definition) tip that users can add to incentivize faster inclusion.
A key design feature of EIP-1559 is that the base fee is burned — permanently removed from circulation — rather than paid to the block producer, which gives ETH a built-in deflationary pressure mechanism tied directly to network usage, since periods of high transaction demand burn more ETH than periods of low demand. EIP-1559 also made transaction fees considerably more predictable for users than the prior first-price auction model, since the base fee only changes gradually between consecutive blocks rather than being subject to sudden, unpredictable bidding spikes.
Examples
- During a period of unusually high Ethereum network demand, EIP-1559's burned base fee can remove enough ETH from circulation to offset or even exceed new issuance from staking rewards.
- EIP-1559 made Ethereum transaction fees considerably more predictable than the previous first-price auction model, since the base fee adjusts gradually rather than spiking unpredictably.