What is EIP-1559?

You might have heard of EIP-1559 which is part of the London hardfork of the Ethereum codebase which is scheduled for August 4, 2021.

In this article, we summarize what you need to know about Ethereum’s upcoming upgrade.

Background

Ethereum in its current iteration is one of the most expensive blockchains to use, and users in recent months have been flocking to Layer 2 solutions or side chains like Polygon and Binance Smart Chain with far lower transaction fees.

Under the current implementation, all operations on Ethereum — for example transferring tokens from one address to another, or staking your tokens on Aave — require gas, which is proportional to the computational energy required to execute the transaction.

Gas is a unit used for measuring the amount of computational effort required to perform specific actions on the Ethereum blockchain.

The more complex the operation to execute by the Ethereum Virtual Machine (the “brain” of the Ethereum network), the more gas required. For example, sending a transaction costs 21,000 units of gas.

By requiring gas for every computation executed on the network, the Ethereum network can prevent malicious actors from spamming the network and bring it down to a halt. It can also help reduce computational waste in the code.

Gas and gas price

While we can calculate the amount of gas required for the operation, it doesn’t tell us how much it costs to execute the operation. What we need to do is multiple gas by the gas price, which is measured in another unit called Gwei.

Gas prices are set arbitrarily and determined by users of the network — when the network is congested, users who want to have their transaction executed faster by the network can opt to pay a higher gas price and have it prioritized ahead of other transactions.

The total cost of the transaction is the amount of gas units required multiplied by the gas price to give you the transaction cost.

Gas prices and miner rewards

Transactions sent on the Ethereum network are first sent to a mempool, where pending transactions wait to be picked up by miners to be…