Ethereum Explained: Gas Fees, EIP-1559 and the Role of ETH

What ETH does

ETH has three jobs on the network.

The first job is what most users see, so we start there.

1. It pays for computation. Every transaction needs gas, and gas is paid in ETH.
2. It secures the chain. Since the Merge on 15 September 2022, Ethereum uses proof-of-stake. Mining no longer produces valid blocks, and validators took over that role. Validators deposit ETH, and ethereum.org says the Merge reduced the network's energy consumption by about 99.95%.
3. It is the base asset of the applications built on it. Wallets, DeFi protocols and token markets are all priced and settled against it.

Gas, gwei and the fee formula

According to ethereum.org, gas is the unit that measures the computational effort required to execute operations on the network. Gas prices are quoted in gwei, and one gwei is one billionth of an ETH (10⁻⁹ ETH).

The fee formula is:

fee \= units of gas used × (base fee \+ priority fee)

A standard ETH transfer uses 21,000 units of gas. Ethereum.org's own example has a base fee of 10 gwei and a tip of 2 gwei: 21,000 × (10 \+ 2\) \= 252,000 gwei, or 0.000252 ETH. The sender pays that on top of the amount sent, the validator gets the tip, and the base fee is burned.

Fees exist so that nobody can spam the network with free computation. Each transaction also has to set a gas limit, which protects against accidental or hostile infinite loops.

What EIP-1559 changed

The fee system changed with the London upgrade on 5 August 2021\. EIP-1559 split the price into parts.

The base fee reacts to demand. Ethereum.org states that it rises or falls by a maximum of 12.5% per block, depending on whether blocks are above or below the target size.

How quickly a base fee can climb. This is our arithmetic and a hypothetical start. Say the base fee is 10 gwei and every block is full, meaning twice the target. At 12.5% growth per block it reaches about 11.25 gwei after one block, 18.0 gwei after five, 32.5 gwei after ten and 105.5 gwei after twenty. That is roughly two minutes of congestion at 12-second blocks turning a 10 gwei fee into three times the cost. In practice the base fee falls again as soon as blocks are below target.

What a contract call might cost. These are hypothetical. Assume an operation that uses 150,000 gas, a 2 gwei tip and an ETH price of $3,000.

The same operation costs eight and a half times as much at the top of the table's range as at the bottom, because gas is metered in units and the price per unit moves.

• Base fee. It is set by the protocol, not by users, and applies to everyone in the block. It is burned, which removes it from circulation. Ethereum.org notes that each block has a target size of half the current gas limit, with a maximum of twice that target.
• Priority fee (tip). This is the amount you add to get included faster. Ethereum.org says it incentivises validators to include transactions and lets users outbid others for priority in the same block.
• Max fee. You can set a maximum you are willing to pay per unit of gas. It must be above the base fee plus the tip, and the sender is refunded the difference between the max fee and the base fee plus tip.

Why fees spike

Ethereum.org's explanation is demand. If there is too much demand, users must offer higher tips to outbid others. More complex smart contract applications also consume more gas because they do more operations. A simple transfer is cheap and a multi-step contract call is not.

The burn and ETH supply

From the moment EIP-1559 went live, part of every fee left circulation. On the day of the London upgrade, The Block reported that block 12,965,263 destroyed 2.078 ETH in base fees against 2 ETH of new issuance to miners, a first in the chain's history.

Whether ETH is inflationary or deflationary over any period depends on two flows. Issuance goes to validators for securing the chain. The burn rises with network use. When use is high, more is burned than is issued, and when it is low, less is. Since the Merge, ethereum.org says, the move to proof-of-stake changed the way ether is issued. We deliberately give no supply figure here, because it changes with activity and any number would be stale. Look it up on a live data source on the day you need it.

Staking: the other use of ETH

Validators deposit ETH to take part in block validation. The reference stake is 32 ETH. The Pectra upgrade, activated on 7 May 2025, raised the maximum effective balance (EIP-7251) to 2,048 ETH, so a single validator can now hold between 32 and 2,048 ETH.

Ethereum.org's description of the incentives is short. Validators earn rewards for voting on blocks (source, target and head votes), sync committee duty and proposing blocks. Missing source and target votes costs the forgone reward. A validator that breaks the slashing rules, for example by proposing two blocks for one slot, loses 0.0078125 ETH immediately in the case of a 32 ETH validator and is removed over a 36-day period, with an additional correlation penalty depending on how much ETH was slashed in total around the same time.

Staking is a separate activity from paying fees, but it ties up the same asset and is the reason ETH has demand beyond gas.

Layer 2 fees and blobs

If the base fee is so volatile, why can some users pay a few cents? Because many transactions now run on layer 2 networks (rollups) that post their data back to Ethereum.

The practical point: layer 1 fees depend on demand for block space on Ethereum itself. Layer 2 fees depend on the layer 2's own costs plus its share of the blob costs.

• Dencun (13 March 2024\) introduced blobs through EIP-4844, a transaction type that lets rollups store data more cheaply. Blobs are guaranteed to be available for about 18 days (4,096 epochs) and are then pruned. Ethereum.org says the upgrade significantly reduces the cost of rollups, with little direct effect on layer 1 gas.
• Pectra (7 May 2025\) raised blob capacity per block from a target of 3 and maximum of 6 to a target of 6 and maximum of 9 (EIP-7691).
• Fusaka (3 December 2025\) added PeerDAS, where each node holds a subset of blob data, which ethereum.org says can scale blob throughput up to eight times in theory. The page also states that the upgrade does not lower gas fees on layer 1, at least not directly, and that the default block gas limit increased to 60 million, with a cap of 16,777,216 (2²⁴) gas per transaction.

Reading a fee quote

This article is general information, not financial advice. The cost examples use hypothetical gas usage and prices.

1. Multiply units by price. Every quote is gas used times gas price. A wallet showing "0.003 ETH" is giving you that product.
2. Know what is burned. The base fee part never reaches validators. Only the tip does.
3. Leave headroom in the max fee. If the base fee rises before your transaction is included, a higher max fee keeps it valid, and the sender is refunded whatever is not used.
4. Check which network you are on. The same swap can cost very different amounts on layer 1 and on a rollup.