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Gas in Ethereum: It’s Not What It Used To Be!
The EIP-1559 Update
Before we get into EIP-1559, it’s important to know that EIP stands for Ethereum Improvement Proposal. EIPs are standards proposed by the Ethereum community to make changes to the Ethereum blockchain protocol. The recent and much-anticipated EIP-1559, which was included in the London hard fork, was first proposed by Ethereum creator Vitalik Buterin as a way to change how transactions are processed on the Ethereum blockchain and how new Ether is minted.
An Ethereum transaction occurs when an externally-owned account cryptographically signs an instruction and the state of the Ethereum Virtual Machine changes. To be added to the Ethereum blockchain, every transaction has a cost, known as gas, that must be paid in Ether to the miners.
With the EIP-1559 upgrade, Ethereum fees are now divided into base fees and tips, and used fees are burned to reduce inflation. Let’s break that down a bit.
Base fees, which are paid in Ether, now fluctuate depending on how congested the network is. And rather than a miner being given this base fee, the fee is burned. This upgrade aims to stabilize transaction fees by having the base fee increase or decrease by up to 12.5%. And the burning of this base-fee, rather than all going to a miner, reduces the supply of Ether that is circulating and thus makes it more scarce.
Tips are used to incentivize miners to prioritize transactions. During high periods of demand, users can decide to allocate ether, as a tip, to incentivize miners to add their transaction more quickly. During lower periods of demand, users are able to include a smaller amount of ether as a tip, or none at all, and won’t need to wait as long for it to be added to a block.
This change to the Ethereum protocol makes fees more predictable, reduces uncertainty in transactions for users, and limits the supply of Ether without creating a supply cap.
C4’s Certified Ethereum Professional (CEP) committee has updated the CEP exam based on the EIP-1559 (London) update.
If you want to read the proposal you can find it here: https://eips.ethereum.org/EIPS/eip-1559
More information can be found here:
If you are interested in analytics on the Ethereum fees and burn rate:
Disclaimer
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