The base fee is the fee that the Ethereum network determines that has to be paid by the user in order to be able to fit a transaction in the next block. This fee can not be set by the user and therefore is burned. The base fee can increase or decrease depending on the utilization of the last block of the Ethereum network. High utilization will mean a higher base fee while low utilization a low fee.
💡 How can I use it?
The indicator described here relates to the EIP-1559 upgrade introduced in the Ethereum network to make the transaction fee model more predictable and fairer. The Base Fee represents a minimum price per unit of gas a transaction must pay in order to be included in a block. Information about the basefee can help users in several ways.
Since the base fee increases with high network utilization and decreases with low utilization, it can serve as an indicator for predicting network congestion. If the base fee is high, it indicates that the network is busy; if it's low, the network is underutilized. This can help users plan their transactions.
For DApps, smart contract operators, or regular users, understanding the base fee can help manage transaction costs. For instance, if the base fee is high, non-urgent transactions could be postponed until the fee drops.
For projects running on Ethereum or investors involved in Ethereum, the base fee can serve as an indicator for financial planning. For instance, the rising base fee might indicate that the network is becoming more valuable, which could potentially impact the price of Ether (ETH).
Lastly, The base fee serves as a real-world example of an economic policy (burn-and-mint equilibrium) in practice, which can be studied for its impacts on Ethereum's market dynamics, inflation rate, and other economic indicators.