EIP-1559 - how the Ethereum fee market works (base fee, tips and burning)

Before 2021 Ethereum fees were set by an auction: everyone bid their own gas price, the most generous won, and users often overpaid or waited for hours. The London upgrade and the EIP-1559 standard made the fee market more predictable. If you are not yet familiar with gas, start with the article gas and fees; the structure of a transaction is in the transaction breakdown.

The idea: the price per block is set by the protocol

Instead of an auction, the network itself assigns a mandatory base gas price for each block - the base fee. It depends on congestion: if blocks are full, the price rises; if empty, it falls. In addition, the user may add an optional tip (priority fee) for the validator to speed up inclusion.

What the payment consists of

price per unit of gas = base fee + priority fee (tip)
total payment         = gas used × price per unit

• The base fee is burned (removed from circulation) and does not go to the validator.
• The priority fee goes to the validator who included the transaction.

Example: a transfer uses 21,000 gas. Base fee 20 gwei, tip 1 gwei. The price is 21 gwei. In total: 21,000 × 21 = 441,000 gwei = 0.000441 ETH. Of this, 420,000 gwei burns and 21,000 gwei goes to the validator.

Two parameters in a transaction

A transaction of the new type (type 2) contains:

• maxFeePerGas - the maximum per unit of gas you are willing to pay;
• maxPriorityFeePerGas - the maximum tip.

The wallet fills them in automatically, but you can change them. You actually pay min(maxFeePerGas, baseFee + maxPriorityFeePerGas). If the actual price is below your maximum, the difference is not charged (it is refunded). So maxFee is a ceiling, not a mandatory spend. Set it with a margin: if the base fee rises before your transaction is included, it will not get stuck.

Base fee adjustment: ±12.5% per block

The target block load is 50% of the gas limit. If a block is filled above the target, the next base fee rises; if below, it falls. The formula simplified:

baseFee_next = baseFee × (1 + (used - target) / target / 8)

• A full block (twice the target): base fee +12.5%.
• An empty block: base fee -12.5%.
• A block exactly on target: no change.

Example. The base price is 20 gwei and five blocks in a row are completely full. The price will rise by 1.125^5 ≈ 1.8 times, to about 36 gwei. Over five empty blocks, conversely, it would fall by about half.

Such smoothness makes the price predictable: it cannot jump tenfold in one block, and a wallet knows what the price will be in the next few blocks.

The block limit and "flexibility"

The block limit is twice the target. This lets the network fit more transactions at peak moments (up to two targets) and run at half capacity in quiet ones. That is exactly why Ethereum blocks have different sizes.

Burning and the ETH supply

The burned base fee reduces the total amount of ETH. Under high load burning can exceed the issuance of new coins to validators, and the supply shrinks. This is a side but important economic effect: fees do not go to "miners" but are shared among all holders (what cryptocurrency is, Proof of Stake).

What this means for a user

1. Estimating is simpler. The wallet knows the nearest base fee and suggests a sensible tip.
2. Urgency. Want it faster - raise the tip. In no hurry - lower it or keep a minimal one.
3. A "stuck" transaction. If the base fee has risen above your maxFeePerGas, the transaction waits until the price returns. You can replace it with another with the same nonce and a higher price.
4. The excess comes back. Do not be afraid to overshoot maxFee: the difference is not charged.
5. Choosing the time. The base fee is often lower at night and on weekends, when the network is less loaded. For non-critical operations that is a saving.

EIP-1559 on other networks

Many EVM networks use the model, but the parameters differ. On Layer 2 the execution fee is joined by a charge for publishing data to Ethereum (rollups under the hood). So gwei prices on Base and Ethereum cannot be compared directly. Choosing a network for a deal is covered in how to choose a network.

What to read next

Learn how the network that fills the blocks works: Proof of Stake and finality. Or how to cut gas use in contracts: gas optimization.