EIP-1559

EIP-1559 is an upgrade to the Ethereum network that simplified the fee market mechanism.


What Is EIP-1559?

EIP-1559 is an upgrade to the Ethereum network that simplified the fee market mechanism. The fee mechanism in Ethereum was based on a first-price auction, in which users bid a set amount of money to pay for their transactions to be processed, and the highest bidder wins. EIP-1559 changed this to a discrete “base fee” for transactions to be included in the next block. Additionally, users or applications that want to prioritize their transactions can now add a tip, called a “priority fee,” to pay a miner for faster inclusion.

How Does EIP-1559 Change the Fee Mechanism?

Based on block demand, the base fee in EIP-1559 increases and decreases by up to 12.5%. If a block is 100% full, the base fee increases by 12.5%, whereas if it is 0% full, the base fee decreases by 12.5%. On the other hand, the tip, which is paid by users or applications to prioritize their transactions, goes to the miner.

Does EIP-1559 Make Gas Cheaper?

No, the goal of EIP-1559 was not to make gas cheaper. The emergence of rollups and layer-2 chains is expected to reduce fees in the future greatly.

How Does EIP-1559 Change the User Experience

The implementation of EIP-1559 makes fees based on block demand more transparent for users. Wallets like MetaMask have better fee estimates and don’t have to rely much on external oracles as the protocol itself manages the base fee. Wallets provide predefined settings based on the urgency of the transaction. Users still have the option to set the priority of their transactions as “low,” “medium,” and “high.” The “tip” will be included as the overall gas fee that users see to submit a transaction, and users will be able to edit the gas fee to increase or decrease the priority fee.

Other Ethereum Upgrades

The Merge is a significant upgrade to the Ethereum network that kicked off the process of shifting Ethereum’s consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS). This transition was important because PoS is considered to be a more energy-efficient and secure method of achieving consensus in a blockchain network.

As part of the Merge, validators had to lock up their ETH and any rewards earned as collateral for participating in block validation. This change was necessary because, under PoS, validators must put up a stake (i.e., a portion of their ETH holdings) in order to participate in block validation. This stake serves as a deterrent against malicious behavior, as validators who engage in malicious activity risk losing their staked ETH.

The Shanghai upgrade introduced a number of improvements to the network, the most significant of which is EIP-4895. This EIP will allow validators who have been staking ETH on the Beacon Chain to withdraw their staked assets. Validators have been staking ETH since December 2020 as part of the move from proof-of-work to proof-of-stake consensus mechanism, known as the Merge. The Shanghai upgrade has allowed validators to finally unlock their staked ETH and either create a “withdrawal credential” to unstake any rewards earned or exit the Beacon Chain completely by unstaking all 32 ETH.

Learn more about EIP-1559!