What Is EIP-1559?
In short
EIP-1559 is the proposal that changed Ethereum's transaction fee mechanism and took effect with the London upgrade in August 2021; it introduced a base fee that adjusts automatically with network congestion and is burned, plus a priority fee that goes to the block producer.
Before EIP-1559, fees on Ethereum were determined by a simple auction: users bid a gas price and miners picked the highest bids. This method made fees hard to predict and led users to overpay. In the new model, each block has a base fee. If the block is fuller than the target capacity, the next block's base fee rises by at most 12.5 percent, and if it is less full, it can fall by the same rate. Blocks can expand up to twice the target.
To make their transaction stand out, the user adds a priority fee on top of the base fee and sets the maximum fee they are willing to pay; the difference between the maximum fee and the fee actually incurred is not charged to the user. The base fee, on the other hand, is not given to the block producer; it is burned and removed from circulation.
This burn mechanism allows the amount of ETH burned during periods of heavy network usage to exceed the amount newly issued, and for the ETH supply to decrease on a net basis. EIP-1559 does not directly lower fees; when the network gets congested, fees still rise, but they become more predictable.
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