Today is a day for the history books: EIP-1559 gets enrolled!
But what will EIP-1559 do with the Ethereum network and why is everybody so excited about it?
Here is why:
1.) EIP-1559 will make gas fees more predictable
But what does this mean? In the Ethereum network, transaction fees are called gas fees. Today, these gas fees are determined by an auction system. So, users who want to execute a transaction bid against each other. The user who pays the highest transaction fee gets block inclusion.
In short: the higher the gas fee, the higher the chances to be included in the next block.
But this auction system is somehow random. Users bid blind on their transaction fees, making them overpaying transaction fees often. This also leads to the fact that transaction fees can be very volatile and unpredictable. With EIP-1559, this will change. Users will pay a base fee that is determined algorithmically depending on how busy the Ethereum network is.
In short: gas fees will be more predictable and prevents people from overpaying. Ethereum will be easier and smoother to use!
2.) EIP-1559 will burn the base fee
So, the base fee will improve the user experience of Ethereum! But there is also an economic change that is coming up due to the base fee. With EIP-1559, the base fee will be burnt. So, whenever a transaction is executed, a certain amount of ETH will be burnt. That said, there could be times where more ETH is getting burned than “created,” making ETH a deflationary asset. So, with EIP-1559, the characteristics of ETH as an asset change entirely!
All in all: with EIP-1559, the user experience of Ethereum improves, and the characteristics of ETH as an asset will change. But how the update will impact the price of ETH is yet to see. Many Ethereum developers claim that we will see the true impacts in the long run.