How Does the “Base Fee” and “Priority Fee” System Work under EIP-1559?
The base fee is the minimum price per unit of gas required for a transaction to be included in a block, and it is determined algorithmically by network demand. The priority fee is an optional "tip" paid by the user to the validator to incentivize them to prioritize the transaction.
Users set a "max fee" which covers both. If the max fee is higher than the base fee plus the priority fee, the excess is refunded.
Glossar
Base Fee
Cost ⎊ The base fee represents the minimum amount required to include a transaction in a block on certain blockchain networks, notably Ethereum following the EIP-1559 upgrade.
Max Fee
Charge ⎊ The maximum fee parameter, prevalent across cryptocurrency exchanges, options platforms, and derivatives markets, represents the highest transaction cost a user is willing to pay for order execution.
Fee
Charge ⎊ A fee within cryptocurrency, options, and derivatives represents a cost associated with executing a trade, accessing a platform, or maintaining a position, directly impacting net profitability and requiring precise quantification for strategy backtesting.
Priority Fee
Incentive ⎊ The priority fee, often referred to as a tip, is an optional payment included in a transaction to incentivize validators to prioritize its inclusion in the next block.