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Conclusion - Gas Fees Are Variable Fees Driven by Supply and Demand
Ethereum gas fees are variable transaction fees that fluctuate with network congestion, not fixed charges. The London hard fork in August 2021 introduced EIP-1559, splitting fees into a two-layer structure: Base Fee (automatically calculated by the protocol and burned) and Priority Fee (a tip paid by users to validators). This design change improved fee predictability and created deflationary pressure on ETH supply.
The Auction Model Before EIP-1559
Before EIP-1559, Ethereum used a First-Price Auction to determine fees. Users set their own Gas Price (in Gwei), and miners prioritized transactions with higher Gas Prices for block inclusion. This approach had three problems. First, estimating the fair price was difficult, leading to either overpayment or stuck transactions. Second, Gas Prices spiked exponentially during congestion; during the 2020 DeFi Summer, a single transaction could cost hundreds of dollars. Third, it became a breeding ground for MEV (Maximal Extractable Value), where miners could intentionally delay transactions to inflate fees.
The Base Fee Auto-Adjustment Mechanism
Under EIP-1559, each block has a Base Fee that increases or decreases by up to 12.5% based on the previous block's gas usage. The target block size is 15 million gas, but blocks can elastically expand to a maximum of 30 million gas. When a block uses more gas than the target, the next block's Base Fee rises; when usage falls below the target, it decreases. This mechanism absorbs short-term demand spikes while ensuring long-term block utilization converges toward 50%. The entire Base Fee is burned and does not become validator revenue. From August 2021 through the end of 2025, approximately 4.3 million ETH was burned cumulatively (per ultrasound.money on-chain data).
Priority Fee and Validator Incentives
Since the Base Fee alone provides no incentive for validators to include transactions, users pay an additional Priority Fee (tip). During congestion, setting a higher Priority Fee ensures faster processing. Under normal conditions, the Priority Fee is around 1-2 Gwei, but during NFT mints or popular token launches it can exceed 100 Gwei. Validator revenue consists of Priority Fees plus MEV; they cannot receive the Base Fee. This separation eliminates the incentive for validators to manipulate the Base Fee.
Structural Causes of Gas Fee Spikes and Countermeasures
The root cause of gas fee spikes is that block space supply is fixed while demand surges in certain periods. During the May 2023 memecoin boom, the Base Fee exceeded 100 Gwei, making even a simple ETH transfer cost over USD 10. Countermeasures include: (1) using Layer 2 solutions (Arbitrum, Optimism, Base, etc.) to reduce mainnet gas consumption, (2) timing transactions for low-congestion periods (UTC late night), and (3) EIP-4844 (Proto-Danksharding, introduced March 2024), which dramatically reduced the cost of Layer 2 data posting to Layer 1.
ETH's Deflationary Structure and Supply Impact
The Base Fee burn under EIP-1559 offsets new ETH issuance (staking rewards). During periods of high network activity and elevated Base Fees, the burn rate exceeds the issuance rate, causing net deflation in total ETH supply. After the September 2022 Merge (transition to PoS), new issuance dropped by approximately 90%, making the deflationary trend more pronounced. However, since 2024, traffic migration to Layer 2 has reduced mainnet gas consumption and consequently the burn rate. Whether ETH remains permanently deflationary depends on demand dynamics.
Summary and Disclaimer
Gas fees are variable fees reflecting Ethereum's supply and demand, and EIP-1559 improved their predictability and fairness. While the Base Fee burn affects ETH's supply structure, it does not guarantee future prices. This article is intended to explain the technical mechanisms of the Ethereum protocol and does not constitute a recommendation for any specific investment decision. Investment decisions are made at your own risk.