EIP-1559

EIP-1559 replaced Ethereum's original first-price auction, where users guessed how much to bid and often overpaid, with an algorithmic system that sets fees automatically based on how full recent blocks are.

Each block has a target size, and the protocol adjusts the gas base fee up or down by as much as 12.5% depending on whether the previous block was more or less full than that target. Users also attach an optional priority tip that goes directly to the validator producing the block, plus set a max fee as a cap; any unused difference between the max fee and the actual charge is refunded automatically.

The defining feature is that the base fee itself is not paid to validators at all. It is sent to a burn address and destroyed with every transaction, permanently removing that ETH from circulation. This was proposed as an Ethereum Improvement Proposal and activated in the August 2021 London hard fork, well before Ethereum's later move to proof-of-stake.

Whether the burn makes net ETH supply deflationary depends on how it compares to new issuance. Since the Merge, validator issuance fell roughly 90%, but the 2024 Dencun upgrade cut mainnet demand further by letting rollups post data through cheaper blob transactions, so burn volumes are now often smaller than issuance, leaving ETH mildly inflationary in quieter periods and deflationary during busy ones. EIP-1559 mainly delivers fee predictability, not guaranteed lower or falling costs.