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I have a few questions that are mostly related to each other.

  1. I don't understand how EIP-1559 makes it a better way than the current one about fees. Since EIP-1559 brings priority fees and miners will decide to include transactions that have higher priority fees, we are back at square 1. Nothing changed and we should still continue outbidding each other.

  2. Can anyone explain with very simple terms why base fee should be burned and why it's necessary in the first place ?

I read the actual original EIP, but still have those questions...

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  • I think that some will argue that the point of EIP-1559 is for Ethereum maximalists to have better arguments against Bitcoin maximalists on Twitter ("My token is less inflationary than yours n00b!!!1!"). Otherwise, us peasant will still pay gas based on how fast we want our transaction to be processed, so not much change.
    – Undead8
    Commented Jul 11, 2021 at 0:12

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EIP-1559 introduces a number of things and there's many explanations, and here's one approach at explaining.

EIP-1559 allows simpler UX for fees and improves the consistency of transactions being mined in a block. EIP-1559 also reduces overpayments to miners.

First, EIP-1559 introduces a flexible block size, and it targets usage of 50%. This means most of the time blocks will be half-full. There can still be spikes when there will be full blocks for some period of time, but that's only likely for short time periods.

Since blocks are usually half full, this means that for most users, all you need to specify is a very small tip (aka priority fee, possibly 1 gwei per gas), and your transaction will still get mined within the next few blocks. Unless you are sending a transaction when the blocks are full, everyone using the minimal tip, will work out well for most people. (Of course if everyone tries to outsmart each other and use 2 gwei, then everyone has to use 2 gwei: so I suggest not increasing your tip unless you really find it's too low.)

To give you a concrete example, you may have seen gas prices recently fluctuate from 5 gwei to 10gwei and higher. Right now you have have to guess what number you want to use, 5, 10, or higher. With EIP-1559, you just set your tip to 1 and your transaction will get mined very soon in the next handful blocks.

The other problem without EIP-1559 is you might see a gas price website which tells you 5 gwei. So you transact with 5 gwei and wait minutes and minutes because the gas price went up to 7 gwei, usually because some people didn't know better and transacted with 7 gwei. So your transaction waits to get mined until 5 gwei is accepted by a miner. In EIP-1559, if everyone tips 1 gwei, everyone will still usually get in very soon because remember that blocks are flexible and can double in size.

How does EIP-1559 reduce overpayments?

Assume a base fee of 100 (gwei).

EIP-1559 introduces a new transaction type. This allows you to do something like specify a tip of 1 and a max_fee_per_gas of 150, and still pay only 113.5, if the base fee in the next block jumps to 112.5. (A full block increases the base fee by 12.5%.)

Without using the new EIP-1559 transaction type, you would pay 150.

You might set a max_fee_per_gas of 150 because blocks are full and you are willing to pay up to 150 for the chance to have your transaction mined. This is very different from specifying a tip of 50.

Why is the base fee burned?

The EIP offers a solid explanation:

This ensures that only ETH can ever be used to pay for transactions on Ethereum, cementing the economic value of ETH within the Ethereum platform and reducing risks associated with miner extractable value (MEV). Additionally, this burn counterbalances Ethereum inflation while still giving the block reward and priority fee to miners. Finally, ensuring the miner of a block does not receive the base fee is important because it removes miner incentive to manipulate the fee in order to extract more fees from users.

A little more information about why base fee is burned

EIP-1559 was proposed because first price auctions are inefficient. The base fee needs to be burned to prevent off-chain markets by miners that would circumvent the base fee and degenerate to a first price auction.

https://timroughgarden.org/papers/eip1559.pdf briefly explains 7th takeaway:

The seemingly orthogonal goals of easy fee estimation and fee burning are inextricably linked through the threat of off-chain agreements. (Sections 8.1–8.2)

In https://youtu.be/62UI3Js30Io?t=1935 Roughgarden gives an example of how a base fee of 90 does not prevent transactions that pay less than 90. Because a user and miner can have an off-chain agreement where a user who only wants to pay 60, on-chain they pay 90, but get refunded 30 off-chain by the miner.

Some other references:

https://www.youtube.com/watch?v=IEQPSJbZsq0 - EIP 1559 Overview

https://ethresear.ch/t/eip-1559-simulations/7280

Note: because of MEV the tip probably needs to be more than 1 gwei:

2 gwei is probably a very good default “you will get in the next handful of blocks” value. 1 gwei is likely a good “slow” value.

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  • Thanks for the nice explanation. @eth .. I might ask following questions. 1). With EIP-1559, ethereum is increasing block gas limit to 30M, correct ? 2). The reason why tip=1 would work and include your transaction most of the time is that base fee would discourage users not to use ethereum if base fee is high and congestion is high, but people were using ethereum even if network congestion was high before EIP-1559 and they were willing to spend lots of fees. so what makes us believe that base fee will discourage users not to use it when it's high ?
    – Nika Kurashvili
    Commented Jul 12, 2021 at 9:35
  • 3) I'd appreciate the easier explanation about why base fee gets burned. I read it in the linked article, but somehow, couldn't see the whole picture.
    – Nika Kurashvili
    Commented Jul 12, 2021 at 9:35
  • 1. Correct, two is the multiplier. 2. 1559 will not help if blocks consistently using 30M gas, but 1559 still useful for spikes: notes.ethereum.org/@vbuterin/… 3. I'll edit and write more.
    – eth ♦
    Commented Jul 13, 2021 at 9:26
  • The key point seems to be that block must consistently use less than 30M gas, but that is a very bold assumption. I mean, look at BSC...
    – Undead8
    Commented Jul 13, 2021 at 18:21
  • This is what really drives me crazy folks.we add base fee, and if interest in eth is high, there'll be more transactions and it will still hit 30M gas even though base fee was increased. I remember the time when people were willing to pay insane amounts for their transaction to be mined. Now you bring base fee and you tell people: "we increase base fee, please don't use ethereum now" and you expect people to go away and wait for network to calm down ? if they were willing to pay so high in the past, what makes you believe they won't do the same thing ?could you say a few words @eth about this?
    – Nika Kurashvili
    Commented Jul 13, 2021 at 20:29

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