Ethereum transactions pay for computation and storage through gas, a unit that measures work. Before the London upgrade, users set a single gas price and miners prioritized higher bids. The London upgrade implemented EIP-1559, authored by Vitalik Buterin of the Ethereum Foundation, which changed how fees are computed: the protocol now enforces a variable base fee that is burned and lets users add a priority fee to reward validators.
How the protocol computes the charge
Each transaction includes a gas limit, the maximum gas the sender allows, and two price fields: maxFeePerGas and maxPriorityFeePerGas. The network maintains a per-block base fee that adjusts algorithmically with block demand. The actual gas price a sender pays for each unit of gas used equals the lesser of maxFeePerGas and the sum of base fee plus maxPriorityFeePerGas. In formula form the effective gas price equals min(maxFeePerGas, baseFee + maxPriorityFeePerGas). The total ETH charged equals the gas used by execution multiplied by that effective gas price. The protocol burns the base fee and forwards the effective priority fee to the block proposer or validator, while unused gas is refunded to the sender, so the final charge can be lower than the originally reserved amount.
EIP-1559 sets the base fee adjustment to target a fixed amount of gas per block; the base fee increases when blocks are fuller and decreases when they are emptier. The proposal allows the base fee to change by up to twelve and a half percent per block to limit sudden swings, a design detail described in EIP-1559 by Vitalik Buterin of the Ethereum Foundation.
Causes, consequences, and real-world nuance
EIP-1559 aimed to improve fee predictability and reduce the winner-take-all bidding of first-price auctions. By burning the base fee, the mechanism creates a deflationary pressure on ETH supply when network demand is high, shifting part of the transaction value away from validators and into the protocol itself. This has implications for validator revenue composition and for market perception of ETH as an asset.
The transition to Proof of Stake, documented on the Ethereum Foundation blog by Tim Beiko of the Ethereum Foundation, changed who receives rewards and dramatically reduced energy consumption compared with Proof of Work. That environmental shift alters the trade-offs around transaction costs and the social license for large-scale validation, but it does not by itself lower gas consumption for complex on-chain operations.
Fees also carry cultural and territorial consequences. High base fees can price out small-value users in lower-income regions and shift activity to Layer 2 networks and sidechains that bundle transactions to cut per-user costs. Developers and wallets now recommend setting careful maxFeePerGas and maxPriorityFeePerGas values or relying on network-aware fee estimation tools to avoid overpayment. Understanding the interplay of gas used, protocol base fee, and priority fee is essential to predict final cost and to design cost-sensitive applications.