The biggest news of the past 2 days is a proposal for an update to be implemented to the Ethereum protocol, which has just been given the green light for July this year.
Named EIP-1559, it includes changes to the way fees are being calculated, applied and distributed.
Currently, Ethereum transaction fees are calculated using a system known as first price auction. Users are in a way, competing to have their transactions included in the next block. The problem with this is that often we are overpaying for transactions, which subsequently causes average fees to rise across the board.
That gas fee will now be sent to the network itself as a sort of โ€œburnโ€ called base-fee and a tip will be paid to miners. They call this an optional tip, but in reality it’s not optional, it will have to be paid.
The burnt fee is algorithmically set, which should result in users paying a fair fee.
This will be an elastic base fee, which will fluctuate according to how busy the network is at any given time. When the gas limit exceeds 50% capacity, the base fee will be reduced. When the gas limit falls below 50% capacity, the base fee will be increased.

The fees of Ethereum have jumped by 122% since the beginning of this year and they were already super-high even before that, so this is a major turn-off for many users. This is one of the reasons why BNB had such a sudden and parabollic bull run as they announced their Smart Chain implementation.
Now, this new update is met with mixed reactions. In fact, from the miners’ point of view, it’s mostly negative. I can see why.
Last month (February), miners earned a combined total of $1.3 billion, half of which was coming from fees collected. This set a new record that we haven’t seen before – that’s more than $700 million revenue just from fees alone. This revenue will no longer go to the miners, it will now be burnt in the form of token burn, by the self-executable smart contract and this is the actual news. This is a deflationary model that many other coins have and what makes me bullish on Ethereum again.
I already see loads of crypto influencers rushing to report how the fees are going to be cut in half or other unconfirmed assumptions they make, but according to William Foxley’s article for Yahoo Finance, this update is not exactly going to lower transaction fees, but rather, introduce a different method of calculating them and will also help with user interface and improve the overall user experience.
I have another point to make – some say that this update makes Ether a deflationary asset.
Reducing the supply of Ether is just the direction that I want to see them taking, since there are so many projects now that are starting to actively compete with the network giant. Ada, Polkadot, Binance Chain, now even Sys.. are all entering the NFTs and DeFi space and although they are nowhere near the popularity of Ethereum as a platform, the more applications are built on these protocols, the more competition there is for Ethereum, so looking long term, in let’s say 5 years from now, it’s not impossible to see Ethereum replaced as the second largest crypto network. Cardano and Polkadot are already right behind it and they achieved that in a much shorter space of time than any of the other so-called Ethereum killers.
There’s one key thing to remember tho – Ether doesn’t have a capped supply – meaning unlike Bitcoin, which is capped at 21 million coins, Ether has no such limit.

So this update is scheduled for this July – if it goes according to plan. We’ll see.


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7 thoughts on “Ethereum’s EIP 1559 In Simple Terms

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