Everything you need to know about the EIP 1559! How it affects users and Ethereum

In a few hours, EIP 1559 will be activated on Ethereum. So it’s high time we took another look at what this means, how transactions will work from then on, and whether it will actually turn Ether into a deflationary asset.

The growing popularity of Ethereum and DeFi has recently also revealed its downside to us in the form of sometimes significantly high transaction fees. Users of the Ethereum blockchain either have to dig deep into their pockets during periods of high network activity or show a lot of patience to see their transactions processed.

Ethereum Improvement Proposal (EIP) 1559 aims to help. The update, expected today, seeks to solve excessive transaction fees by updating the way transactions work on Ethereum and changing the underlying economics of the network’s existing monetary policy.

EIP 1559 proposes a new approach to transaction fees in which users pay an algorithmically adjusted base fee for each transaction. At the same time, they would have the option to tip to expedite their transaction.

What seems even more exciting to many is the fact that each transaction also burns some ETH. As a result, many are hoping that Ether will become a deflationary asset. A circumstance that could, of course, in all likelihood, has a positive effect on the Ethereum price.

In light of this, let’s look at what today’s update to EIP 1559 means for the future processing of transactions and the Ethereum price.

How transaction fees are calculated on Ethereum

To better understand EIP 1559, we first need to decipher the basic structure of Ethereum transactions.

Every recorded action in Ethereum’s distributed ledger changes the state of the blockchain and is considered a transaction. Examples of transactions include sending tokens, trading tokens on decentralized exchanges like Uniswap, and using credit on Aave.

Every Ethereum transaction involves fees. These fees incentivize miners to provide power to the network. At the same time, they prevent malicious actors from launching a spam attack on the network. This is because the fees ensure that such an attack would…