EIP-1559

EIP-1559 is an Ethereum protocol upgrade, activated in August 2021, that changed how Ethereum calculates and processes transaction fees and introduced a fee-burning mechanism. The set of changes replaced the prior gas market whereby network participants bid against each other to have their transactions included in blocks, with a new model consisting of a base fee that changes algorithmically in relation to prior block usage and is relatively stable from block to block most of the time, and a priority fee, set by the network participant to prioritize their transaction's inclusion. The model specifies that the base fee is entirely burned while the block producer receives the priority fee. EIP-1559 was intended to provide greater certainty concerning fee levels to network participants and changed Ethereum's cryptoeconomics by introducing a hard sink and source of deflation. Several other layer one blockchains have also implemented models similar to EIP1559 in recent years.