EIP-1559
EIP-1559 is an Ethereum Improvement Proposal implemented in August 2021 that reformed Ethereum's transaction fee market by replacing the legacy first-price auction with a protocol-defined base fee that automatically adjusts each block and is burned rather than paid to validators, alongside an optional priority fee that users pay directly to validators for faster inclusion.
Before EIP-1559, Ethereum used a first-price sealed-bid auction: users estimated what gas price would be high enough to get their transaction included in the next block, overpaying in competitive periods and frequently leaving uncertainty about whether a submitted transaction would be included promptly. This mechanism produced highly volatile fees, poor user experience, and guaranteed that all fee revenue accrued to miners.
EIP-1559 introduced a fundamentally different market structure. Each block has a target gas usage of 15 million gas (half the maximum 30 million limit). If the prior block used more than the target, the base fee for the next block automatically increases by up to 12.5%; if less, it decreases by up to 12.5%. This exponential adjustment creates a predictable, market-responsive fee floor.
Critically, the base fee is burned — permanently removed from the Ether supply — rather than paid to validators. This makes Ether deflationary during periods of high network usage: more Ether is burned in fees than is issued as staking rewards, reducing net supply. During congested periods in 2021-2022, Ethereum became net deflationary on multiple occasions, and the cumulative Ether burned since the upgrade has exceeded several million ETH.
Users still pay an optional priority fee (tip) on top of the base fee. This tip goes directly to the block proposer and incentivizes validators to include transactions ahead of others at the same base fee. In practice, the tip is the competitive component of the fee for time-sensitive transactions.
For the user experience, EIP-1559 made fee estimation dramatically simpler. Wallets can read the current base fee from the last block header and set an appropriate max fee (base fee plus tip headroom) without requiring complex fee oracle integrations. The Ethereum JSON-RPC API exposes eth_feeHistory to help wallets suggest optimal parameters.
From a monetary policy perspective, EIP-1559 is significant because it gives Ether a deflationary supply mechanism. Supporters argue this makes Ether a sound store of value; critics argue that burning transaction fees creates perverse incentives during low-usage periods and does not fundamentally improve long-run monetary policy predictability.