Thread by @korpi87

"EIP-1559 sucks. After it was implemented gas prices skyrocketed!"

This take is propagated a lot and I think this is far from true. Correlation is not causation. I suppose gas prices would be much higher now if we didn't have EIP-1559. How does EIP-1559 save you $ETH? 🧵👇

1)
Before EIP-1559 when you submitted a transaction on Ethereum, you had to set up a single gas price. If it was high enough, your transaction was included in a block and you paid exactly what you agreed to pay. In many cases you might have substantially overpaid though. Why?

2)
Imagine you need to execute a transaction immediately. You check gas prices on gasnow.org and you see a rapid transaction is at 100 GWEI. But this is just an estimation and may suddenly increase. To secure inclusion in the first block you decide to use 200 GWEI.

3)
Your transaction goes through and you paid 200 GWEI. But the truth is that it might have been included in this block even if you had used 100 GWEI. You might have substantially overpaid. This is how it worked before EIP-1559. How does it work now?

4)
First we need to understand a few types of fees in EIP-1559:
- Base Fee - The minimum gas price required for a transaction to be included in a block which is set by the protocol and is burned. If your transaction doesn't cover Base Fee, it can't be included in a block.

5)
- Priority Fee - The gas price you are OK to pay to miners to process your transaction. It's a tip to incentivize miners to prioritise your transaction. If there are more transactions than can fit into a block, miners most likely will include the ones with the highest tip.

6)
- Max Fee - The highest total gas price you are willing to pay for your transaction. It must be higher than Base Fee + Priority Fee. If it's not, your transaction will be pending. If it's higher, your transaction will be executed and you will be refunded an excess amount.

7)
Have you paid attention? "Refunded an excess amount". That's the key. You set up Max Fee you are OK to pay but you always cover only Base Fee + Priority Fee. If they are lower than your Max Fee, you don't overpay. That's the power of EIP-1559. It wasn't possible before.

8)
How does it work in Metamask? You can manually change Priority Fee and Max Fee. Where to take them from? A great gas estimator is provided by @blocknative: blocknative.com/gas-estimator. It displays Priority Fee and Max Fee and the probability that your transaction will be included.

9)
Tips & tricks:
- Set up high Max Fee if you want your transaction to go through in case of sudden surges in network demand. Base Fee increases by 12.5% for each full block (it's >10x increase in 20 blocks!). If Max Fee < Base Fee + Priority Fee, a transaction won't go through.

10)
- Set up lower Max Fee if you are OK to wait until Base Fee + Priority Fee < Max Fee.
- Always check Priority Fee in Metamask! I noticed that it's sometimes set equal to Max Fee. In this case, you will definitely pay Max Fee for your transaction and most likely overpay!

11)
Imo, the fact that users are able to set up Max Fee but always pay only Base Fee + Priority Fee and, therefore, don't overpay for transactions, is a sufficient proof that EIP-1559 couldn't cause increase in gas prices. It's the opposite, gas prices would be higher without it.

12)
"But ser. Gas is insane now. It was lower before EIP-1559! What happened?"
JPEGs happened. NFT mania. Look at OpenSea volume and compare July and August. It was 10x increase in monthly volume which means a substantial increase in network congestion. dune.xyz/rchen8/opensea

13)
Or go to ultrasound.money and check the Burn Leaderboard. OpenSea has been the greatest ETH burner in the last 30 days. Every day there are a few NFT drops that enter the leaderboard too. In a bull run, when people make money, they are OK to spend more on gas.

14)
What could probably lower gas prices is a better EIP-1559 adoption. Only 51% of all Ethereum transactions are type 2, i.e. EIP-1559. There are still wallets that don't support EIP-1559, e.g. @Metamask + hardware wallet (wen?!).

https://twitter.com/blocknative/status/1433206965753171968

15)
However, when I say "lower gas prices", I don't mean sustainably cheaper transactions on Ethereum in the long run. EIP-1559 is not a scalability improvement. It helps users not overpay for transactions but it doesn't improve Ethereum throughput. It was never meant to as well.

16)
Real scalability improvements are Layer 2 solutions. I believe most of our Ethereum activity will be soon on L2s while mainnet will remain expensive but truly decentralized and secure settlement layer. It's not the subject of this thread though :)

TL;DR:
- EIP-1559 didn't increase gas prices, JPEGs did (NFT mania).
- EIP-1559 allows users to not overpay for transactions because the difference between Max Fee and Actual Fee (Base Fee + Priority Fee) is refunded.
- Remember to set Priority Fee in your wallet to not overpay!

If you want to understand more how EIP-1559 impacts $ETH, I recommend my other thread:

https://twitter.com/korpi87/status/1422154017598287875

Detailed but excellent explanation on EIP-1559 mechanics from @thedailygwei: thedailygwei.substack.com/p/this-is-eip-…