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EIP-1559 – All You Need to Know

EIP-1559 is a core proposal to improve the efficiency of the transactions through the Ethereum network. Once implemented, the proposal will modify the ETH transaction process to a two-fee mechanism. A base fee amount, adjusted up and down by the Ethereum protocol, based on the congestion of the Ethereum network. A priority fee amount, used to compensate miners.

30 Jul
2021
Sree
EIP 1559
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2021 has so far been an exciting year for the crypto industry. Although we are only just past its halfway point, it has already turned out to be a historical one.

One piece of news creating a buzz in crypto communities is the upcoming Ethereum London hardfork and the EIP-1559 improvement proposal included in the hardfork.

EIP-1559 is one of the core proposals for the Ethereum network that is due to go live soon. To understand the benefits of EIP-1559 and how it plans to help Ethereum or ERC-20 token users, you first need to understand what an Ethereum improvement proposal is.

EIP – Ethereum Improvement Proposal

Ethereum improvement proposals or EIPs are proposals made by the Ethereum dev community to improve the functioning of the Ethereum network.

There are seven different types of Ethereum improvement proposals:

  • Standard Track – Any change that affects most or all Ethereum implementations.
  • Core – Network improvements that require a consensus fork.
  • Networking – Primarily includes improvements around devp2p.
  • Interface – Primarily includes improvements around client API/RPC specifications and standards.
  • ERC – Application-level standards and conventions, including contract standards such as token standards (ERC-20).
  • Meta – Deals with proposals related to processes surrounding Ethereum or proposes a change to (or an event in) a process.
  • Informational – Proposals directly related to Ethereum design issues or provide general guidelines or information to the Ethereum community but do not propose a new feature.

Each of these EIP types is explained in detail here.

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EIP-1559

Now that you have read about EIPs, and how each is important for the Ethereum network, let us look at the EIP-1559 proposal.

EIP-1559 is a core proposal to improve the efficiency of the transactions through the Ethereum network by giving users more control over fees spent on these transactions.

Traditionally, for a transaction on the Ethereum network to complete, the transaction cost is determined when a user chooses a specific Gas price and when miners accept this Gas price.

EIP-1559 aims to modify this method and further incorporate a burning mechanism into the transaction process.

Once implemented, the proposal will modify the ETH transaction process to a two-fee mechanism.

The first one will be a base fee amount, which is adjusted up and down by the Ethereum protocol, based on the congestion of the Ethereum network. The second one, a priority fee amount, is the one used to compensate miners.

When the network exceeds the target per-block gas usage, the base fee increases slightly, and when capacity is below the target, it decreases slightly. The automatic adjustment of the base fee by the protocol enables the Wallets to auto-set the Gas fees for users. Hence, unlike the current standards, most users will not have to manually adjust gas fees, even in periods of high network activity.

A user wallet will be able to estimate both the base fee and the priority fee. Users will also have the provision to manually set the transaction max fee to bind their total costs.

Furthermore, the base fee for a transaction is always burned.

Hence, the implementation of the EIP-1559 may help to remove miners’ incentives to manipulate the fee of an Ethereum transaction in order to extract more fees from Ethereum users.

Conclusion

Ethereum improvement proposals are modelled to improve the operation of both the Ethereum network and tokens created on ERC standards.

The upcoming improvement proposal included in the London hardfork, EIP-1559, intends to resolve the higher Gas fees issue for Ethereum users at times of heavy network activity.

The EIP-1559 will introduce two types of fees to Ethereum transactions. The first is a base fee that will be auto-adjusted by the ETH protocol according to the network congestion and burned upon completion of the transaction. The second, a priority fee, will be the one used to compensate the miners.

With the introduction of this two-fee structure and incorporating a burning mechanism, EIP-1559 has the potential to discourage miners from manipulating the fee for higher incentives.

Hence, the EIP-1559, scheduled to be released during August, has the capacity to be highly beneficial for Ethereum users and, in effect, be a pivotal event in the history of the Ethereum network.