EIP-1559 Definition
Ethereum Improvement Proposal 1559 (EIP-1559) is an upgrade proposed in the Ethereum blockchain network to overhaul the current fee market, aimed at improving the predictability and stability of transaction fees. This adjustment is significant because it introduces the concept of base fee and burn mechanism, which can reduce the overall supply of Ethereum, potentially leading to an increase in its asset value.
EIP-1559 Key Points
- EIP-1559 changes the mechanism of transaction fee calculation in Ethereum by introducing a base fee and a tips system.
- The proposal is expected to reduce unpredictability in transaction fees, improve the user experience and potentially reduce total supply of Ethereum through a fee burning mechanism.
- The EIP-1559 is part of the Ethereum network’s London upgrade and is a step towards Ethereum 2.0, which aims to shift the network from Proof-of-Work (PoW) to a more energy-efficient Proof-of-Stake (PoS) consensus mechanism.
What is EIP-1559?
EIP-1559 is a model for dynamically adjusting transaction fees in the Ethereum network. The proposal was made by Ethereum’s co-founder Vitalik Buterin and other developers to address certain issues regarding the predictability and stability of transaction fees in the Ethereum ecosystem.
Why EIP-1559?
The EIP-1559 proposal is aimed to tackle the issues related to high and unpredictable gas fees. The current auction-style fee market can lead to high fees during network congestion. Furthermore, it’s hard to estimate the correct bid for getting transactions processed quickly. The EIP-1559 aims to make transaction fee estimation more predictable, allowing a better user experience.
Where EIP-1559 is applied?
As a part of the Ethereum Network, EIP-1559 applies to all transactions on the Ethereum blockchain. Whether on Ethereum itself or any DApps built on top of the Ethereum network, the EIP-1559 proposal changes how all transactions are fee-structured.
When is EIP-1559 effective?
EIP-1559 was proposed in 2019 and has been included in the London upgrade, which went live in August 2021.
How does EIP-1559 work?
EIP-1559 introduces a “base fee” for transactions that is adjusted up or down by the protocol based on how congested the network is. It also introduces an optional “tip” paid to miners to process transactions in a timely manner. The major difference to the current model is, under EIP-1559, the base fee is “burned”, i.e., removed from circulation, which could lead to deflationary effects on Ethereum’s native asset, Ether.
