EIP-1559 is a proposal to make Ethereum transactions more efficient and reduce high transaction gas fees. The upgrade to the Ethereum blockchain, which is scheduled for July 2021, is set to alter the way miners are incentivized and is intended to make Ether (ETH) deflationary.

Every transaction on the Ethereum blockchain accrues transaction fees, referred to as gas fees. These gas fees are used to reward miners for validating transactions. However, the more congested the network is at the time of your transaction, the higher the gas fee miners can charge.

This means that gas fees could sky-rocket as everyone competes to have their transactions confirmed as quickly as possible during high congestion.

EIP-1559 proposes to solve this problem by replacing Ethereum’s gas fee model with a model that splits transaction fees into base fees and tips. The base fee would be based on network usage. If the network traffic is above 50%, meaning each validated block is more than half full, the base fee will go up and vice versa if network usage is less than 50%. This will help to maintain the network at 50% capacity at all times, preventing congestion.

After collection, the transaction fees are burned, which reduces the amount of Ether in circulation and will eventually make the cryptocurrency deflationary.

The network will also provide a tipping function, allowing users to tip miners as a way to prioritize their transactions.

While Ethereum users and token holders stand to benefit from EIP-1559, a lot of miners have been disgruntled at the news, since the proposal is set to significantly reduce their earnings.