Introduction
In the Ethereum network, transaction fees are determined by gas used * gas price. With the implementation of EIP-1559, the gas price now consists of two components: the base fee and the priority fee. This guide explores how these fees work, their calculation methods, and practical implications for users.
Key Changes Under EIP-1559
EIP-1559 went live on August 5, 2021, as part of Ethereum's London upgrade. It introduced a new pricing mechanism aimed at:
- Predictability: Smoother fee fluctuations.
- Efficiency: Dynamic adjustment of base fees based on network demand.
- Transparency: Clear separation of network fees (base fee) and miner incentives (priority fee).
Components of Gas Fees
1. Base Fee
- Automatically set by the Ethereum protocol.
- Adjusted per block based on utilization (target: 50% block capacity).
- Burned (destroyed), reducing ETH supply over time.
2. Priority Fee (Tip)
- User-defined reward for miners.
- Flexible: Higher tips incentivize faster transaction inclusion.
Fee Calculation Mechanics
Base Fee Adjustment Formula
The base fee changes according to the previous block's utilization:
| Previous Block Utilization | Base Fee Adjustment |
|---|---|
| 0% | Decrease by ≤12.5% |
| <50% | Decrease proportionally |
| 50% | No change |
| >50% | Increase proportionally |
| 100% | Increase by ≤12.5% |
Example Scenarios
| Utilization | Base Fee (100 Gwei) | New Base Fee |
|---|---|---|
| 100% | 100 × 1.125 | 112.5 Gwei |
| 75% | 100 × 1.10 | 110 Gwei |
| 50% | 100 × 1.00 | 100 Gwei |
| 25% | 100 × 0.90 | 90 Gwei |
| 0% | 100 × 0.875 | 87.5 Gwei |
Practical Considerations
Setting Max Fee
Users specify a Max Fee to cap total costs. This ensures:
- Protection against sudden fee spikes.
- Predictable spending (
Total Fee ≤ Max Fee × Gas Used).
Formula: Max Fee = 2 × Base Fee + Priority Fee
Example:
- Base Fee: 100 Gwei
- Priority Fee: 10 Gwei
- Max Fee:
2×100 + 10 = 210 Gwei
👉 Optimize your gas fees with these pro tips
Priority Fee Guidelines
- Normal conditions: ~2 Gwei suffices.
- High demand: Increase priority fees to compete for block space.
- Cap: Priority fees auto-reduce if
(Base Fee + Priority Fee) > Max Fee.
FAQs
1. Why is EIP-1559 better for users?
It reduces fee volatility and provides clearer cost estimations, making transactions more predictable.
2. How often does the base fee change?
Every block (~12-14 seconds), adjusting dynamically based on network activity.
3. Can I set a priority fee of zero?
Yes, but transactions may face delays as miners prioritize tipped transactions.
4. What happens if my Max Fee is too low?
Transactions may stall until network congestion eases and fees drop below your cap.
5. How does fee burning impact ETH's value?
By permanently removing base fees from circulation, EIP-1559 introduces deflationary pressure on ETH.