How will EIP-1559 affect the Ethereum ecosystem? Analysis from the perspective of miners, users and investors
The EIP-1559 proposal was proposed by the Ethereum community Eric Conner in November 2018. The core problem to be solved is the transaction pricing problem of the Ethereum network.
The EIP-1559 proposal has made a great adjustment to the transaction pricing scheme of the Ethereum network, from the original market auction mechanism (the higher the price is first packaged) to adjust the base fee + tipping; at the same time, there is a dynamic and scalable Block size design to cope with instantaneous network congestion.
In the EIP-1559 proposal, although the basic fee for each block is fixed, it will adjust the base fee for each subsequent block according to the network congestion. The proposal mentioned that there will be an algorithm to adjust the increase or decrease of the basic cost, which will be adjusted according to the amount of gas consumed in the previous block and the target gas limit. If the gas consumed by the current block is higher than the target gas, the basic cost will increase; otherwise, the basic cost will decrease.
When the network is congested, small fees are rewarded to incentivize miners to pack user transactions into blocks. Each transaction can specify the basic fee and the upper limit of the tip. This proposal also includes a transitional plan: at the beginning, half of the block retains the original bidding mechanism, half adopts the new fee mechanism, and gradually transitions to the new plan.
The EIP-1559 proposal has been questioned and opposed by some miner groups in the past six months. We will not delve into whether the EIP-1559 proposal is reasonable, but just sort out its impact on the miner community.
In this proposal, the most noteworthy point is that the base fee will be destroyed instead of being owned by the miners. This is understood by many investors as a great benefit of ETH, because this will destroy a part of ETH, which will bring about deflationary effects.
When participating in ETH mining, miners can only get fixed block rewards and tips included in block transactions. It is expected that the base fee in the block should be much higher than the tipping fee. Therefore, if the EIP-1559 proposal is implemented, the income of the miners will inevitably be affected and part of the original transaction costs will be lost.
In the current Ethereum transaction pricing mechanism, if you only use your wallet to transfer funds occasionally, you may not feel the pain of pending. For developers or users who often interact with smart contracts on the chain (such as NEST quote miners, DeFi arbitrageurs), the experience will be deeper. For example, you may often encounter inaccurate gas price estimates, resulting in transactions that are always pending. If the front-end interactive tool does not have the function of “Cancel transaction” or “Accelerate transaction”, then you can only wait dry; if you want to initiate another transaction, it will not solve the problem, because the previous transaction has been blocked There, even if the gas fee for your new transaction is higher, you have to wait for the previous package to be completed. Is this painful? Yes.
What’s more painful is that it not only wastes your time and energy, but also increases your basic cost of using the Ethereum network. Originally, a transaction cost A ETH to solve, but due to gas price estimation problems or the short-term fluctuation of the Ethereum network, you may have to spend an extra 2A to complete the packaging of this transaction.
However, if it is the EIP-1559 proposal, these problems mentioned above will be greatly alleviated. Because, in the EIP-1559 proposal, users do not need to estimate the gas price when packaging transactions. They only need to set the maximum amount they are willing to pay to obtain the inclusion and packaging of the transaction without worrying about paying excessive fees. If the current base fee is 10 and the tipping tip is 1, even if your payment limit is 1000 gas, then it will actually only consume 11 gas. Rather than the current Ethereum transaction pricing mechanism, if your gas fee is set to 10 ETH, then really 10 ETH will be destroyed as a gas fee.
Therefore, for developers and users on the Ethereum network, the EIP-1559 proposal greatly improves the usability of Ethereum as a basic network facility.
As mentioned earlier, the base fee in the block will be directly destroyed, to a certain extent ETH as an asset has a deflationary effect; therefore, from the perspective of investors, the EIP 1559 proposal is conducive to the price increase of ETH. Of course, this is only the most superficial effect, but the source of price increases may not necessarily be caused by deflation. I won’t discuss it here. You know that there is such a thing.
to sum up
Earlier, we just did a simple attribute analysis. As far as the entire EIP-1559 proposal is concerned, it is very complicated, with many hidden functions and issues worth discussing. In summary, we can see the most significant feature of EIP-1559: it improves the usability of the Ethereum network and weakens the miners’ transaction packaging revenue. There is no news about the specific implementation time of the EIP-1559 proposal. According to the recent Ethereum community AllCoreDev meeting, it is possible that after the Ethereum “Berlin” hard fork, another fork will occur, and the EIP-1559 proposal will become The most eye-catching candidate EIP in this fork.
In view of the high probability of opposition from the miners group, whether the EIP-1559 proposal can be implemented or not has great variables.
Author/ Translator: Tae Kon Jung