How EIP-1559 Changes Ethereum Fees and ETH Supply
Summary
The document explains EIP-1559’s planned replacement of Ethereum’s user-set gas-price auction with a protocol-set base fee that adjusts according to block usage. Wallets can use the bounded, block-by-block fee changes to estimate near-term costs more consistently. Users may still add tips when they need priority during congestion, so the upgrade is presented as improving fee estimation and reducing overpayment rather than guaranteeing lower fees.
The report also describes how the base fee is burned instead of paid to miners, while block issuance continues. This reduces net ETH issuance and could make supply shrink when burns exceed new issuance. Requiring the base fee in ETH also reinforces ETH’s role in network transactions. The document gives historical fee examples and explains how DeFi demand and congestion raise competition for block space. Its discussion is prospective and reflects the 2021 upgrade plan; it does not establish later outcomes, and fee burning does not ensure deflation in every period.
Key ideas
- EIP-1559 replaces the first-price gas auction with a protocol-adjusted base fee.
- Base fees rise when blocks exceed the target usage level and fall when usage is below it.
- Users may pay tips to compete for inclusion during urgent periods of congestion.
- Burning base fees reduces net ETH issuance, but deflation depends on burns exceeding new issuance.
- The upgrade aims to improve fee estimation and ETH’s network utility, not necessarily to lower fees.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.