Thread by @stefancoburn

1/ I've seen a lot of confusion over EIP-1559, and what the future holds for transaction costs after its implementation. I want to illuminate the current state of affairs and dynamics by analogy. That of a giant bus terminal.

$ETH #EIP1559 #Ethereum

2/ Imagine a giant bus terminal with people who want to board a bus to get to the next stop. Buses come every 10-15 seconds. The buses have a fixed number of seats and the driver can select the people to fill all the seats.

3/ There is set no ticket price, instead passengers shout how much they'll pay for their seat. Bus drivers wanting to maximize their profit start from the highest seat bid and work down the bids till the bus is full. Then they leave. Next bus comes and does the same.

4/ In the morning and afternoon during rush hour, passengers don't want to wait multiple buses to get a seat. They might risk being late for work and getting fired. So they look around at what other people are bidding and add a bit more to make sure they will get a seat.

5/ Things can get out of hand though. This "I'll add a bit more" mentality can spiral out of control resulting in over bidding. I see the average price is $10 for a seat, so the incoming patrons start to add a bid more because they urgently need transport.

6/ At other times, some people who don't mind reading a book in the bus terminal can shout a low seat price and wait for many buses to come and go until the terminal thins out and a driver takes their low seat price.

7/ At this point I'll connect the analogy to Ethereum, the buses are blocks. The seats are the associated blockspace. The seat bid is gas price. The bus drivers are the miners. And the passengers waiting in the terminal are the pending transactions in the mempool.

8/ EIP-1559 changes the dynamics a fair amount. And contrary to what many people say, there is no necessary reason why it should drastically reduce transaction costs. Remember gas cost is used to allocate a scarce resource and the scarcity of seats doesn't change under EIP-1559.

9/ After the change, rather than shouting a price and waiting an indeterminate amount of time for a driver to have an open seat at your bid-- now each bus comes with an entry price. There is a set price to board the bus. Also the buses have twice the seat.

10/ If you are willing to pay the entry price, you can come on the bus. The entry price is set such that only 50% of the seats are supposed to be filled. If a bus leaves under 50% filled, the entry price for the next bus will be lower. If over 50%, then the price will increase.

11/ For short periods of time, buses can leave with 2x the passengers as before the change. Meanwhile the entry starts exponentially increase to reduce the load on the system and effectively allocate the scare seat space.

12/ Most of the time the entry price works to moderate the filling of the buses. But sometimes, a panic sets in the city and people want to get the heck out of dodge.

13/ You can wink at the driver and slide him a $20 bill along with the entry price to ensure in this chaotic time, you make it on the bus.

14/ Analogy explainer- the entry fee is the EIP-1559 BASEFEE and the tip is the "tip" that can be included to miner's for inclusion. The block size target is the same as before but the blocks can grow to 2x bigger during times of network congestion.