EIP-1559

EIP-1559 (Ethereum Improvement Proposal 1559) is a proposal to improve Ethereum that was activated on August 5, 2021, as part of the London hard fork. It aims to change the transaction fee system in Ethereum, making fees more predictable and improving the user experience.

Main changes introduced by EIP-1559:

1. Fee Mechanism:
   • Previously, in Ethereum, users would propose their own transaction fee, and miners would select transactions with the highest fees to include in a block. This created unpredictability and high fees, especially during network congestion.
   • EIP-1559 introduces a base fee mechanism, which is automatically calculated based on network congestion. This base fee is burned (removed from circulation), decreasing the total supply of ETH.
2. ETH Burning:
   • The base fee for transactions is burned, making ETH a potentially deflationary asset. The more congested the Ethereum network is, the more ETH is burned.
   • This reduces the overall circulating supply of ETH, which may positively impact its long-term value.
3. Tips for Miners:
   • Users can add a small priority fee (tip) to incentivize miners to include their transaction in a block faster. This provides miners with additional compensation, but the main transaction fee mechanism is now more predictable.

Advantages of EIP-1559:

1. More Predictable Fees:
   • Users now have a clearer idea of how much a transaction will cost, as the base fee dynamically adjusts to network load.
2. Potential Deflationary Pressure on ETH:
   • Burning transaction fees reduces the amount of ETH in circulation, potentially leading to scarcity and an increase in value, especially during periods of high network activity.
3. Improved User Experience:
   • EIP-1559 simplifies the process of sending transactions, making it more intuitive and user-friendly, reducing the need for manual fee adjustments.

Conclusion:

EIP-1559 is a significant upgrade to the Ethereum network that made the fee system more predictable and introduced the concept of burning ETH, which could make it a deflationary asset over the long term. This change aims to improve both the user experience and the overall economics of Ethereum.