Ethereum’s ‘EIP 1559’ Fee Market Overhaul Greenlit for July
One of the most significant and contentious alterations to the Ethereum blockchain in recent memory is now scheduled for inclusion into its codebase.
Ethereum Improvement Proposal (EIP) 1559 will be packaged with the London hard fork this coming July regardless of the mining industry’s discontent with the proposal, according to the All Core Developers call Friday. At least five other EIPs are likely to join EIP 1559 in London.
EIP 1559 flips a typical blockchain transaction on its head in order to fix numerous issues with Ethereum’s user experience. Traditionally, a user sends a gas fee to a miner for a transaction to be included in a block. That gas fee will now be sent to the network itself as a sort of “burn” called basefee with only an optional tip paid to miners. The burnt fee is algorithmically set as well, ostensibly making it easier for users to pay a fair fee.
The proposal has garnered some of the largest support to date from Ethereum application creators and users alike, given the current difficulty of selecting a correct transaction fee. Miners and mining pools, on the other hand, have been gathering in opposition against the proposal as it progressed toward mainnet.
Mining gold rush
Indeed, Ethereum mining has been a particularly lucrative business of late. Total mining revenue surpassed a record $1.3 billion in February, with some 50% coming from fees alone, according to Coin Metrics. An increase in both the price of ether and transaction fees has introduced a wave of new hash power to the network, which is more than double that of a year ago.
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Minority mining pool Flexpool launched a marketing campaign against the EIP. Several minority pools joined, followed by majority pools Ethermine and SparkPool. Over 60% of the Ethereum network’s hash power is now against the proposal. F2Pool is the largest pool in favor of the EIP, with some 10% hash power.
On the call, Ethereum developers decided to pair EIP 1559 with a delay to the difficulty bomb. Also called the “Ice Age,” the bomb incrementally increases the difficulty of mining on the Ethereum network. Geth team lead Péter Szilágyi said that pairing EIP 1559 with the delay helped ensure no one would fork Ethereum at that time without having to undergo some technical hurdles.
MEV to the rescue
Mining pools have only a few options to stop EIP 1559 now that it’s included, and most of these would be considered actively hostile against the network. The largest danger would be a 51% attack against Ethereum, which would censor transactions using the EIPs framework. It remains unlikely, however, given various financial incentives not to attack the network.
For example, successfully using a 51% attack against Ethereum would likely decrease the value of ether in the short term. (Or maybe not, as three 51% attacks on Ethereum Classic have shown).
An Upgrade to Reduce the Supply of Ethereum Gets a Launch Date
In brief Ethereum is getting a major upgrade this July.
It changes the way Ethereum transaction fees work.
Lots of miners, those who help to secure the network and are rewarded for it, aren’t happy.
An Ethereum upgrade that lowers the volatility of transaction fees has been scheduled for Ethereum’s next major hard fork.
The upgrade, EIP-1559 (EIP stands for Ethereum Improvement Proposal), is scheduled to go live in Ethereum’s “London” hard fork this July.
The proposal reduces the volatility of transaction fees by burning the fees, paid in ETH, instead of paying miners.
Although miners will lose money, analysts think that the upgrade could pump the price of Ethereum and make it cheaper to use.
What is EIP-1559?
EIP-1559 overhauls the way users pay Ethereum’s transaction fees. Currently, fees are paid to miners for processing transactions.
The cost of those fees depends on the supply of miners and users’ demand for them. If there’s a bottleneck on the network, miners can charge usurious rates of over $20 per transaction.
EIP-1559 would replace the supply/demand auction-style system in place today with a standard rate across the network. The fee, called “BASEFEE,” would rise when the market is busy and fall when it’s quiet.
The crucial difference is that the fee is set by the network and altered by burning ETH. EIP-1559 means that miners don’t set the rates; the network does. And the transaction fees don’t go to miners; they’re burned.
EIP-1559: Good for Ethereum?
Tim Ogilvie, CEO of Ethereum infrastructure firm Staked, told Decrypt that it’s likely to be “positive on the long term price of Ethereum.” Lower and more predictable gas fees, he said, means that Ethereum isn’t just for the rich, encouraging people to build and use the network.
Ogilvie told Decrypt last month that burning ETH would also increase the price because it makes ETH more scarce. Instead of distributing fees to miners, that ETH is gone for good.
Miners’ strike
The upgrade is not without its critics. Two of the three largest Ethereum miners are angry that it would dig into their fees, and a further 10 have announced their discontent with the upgrade.
Spark Pool, a mining pool that controls 26% of the hashrate, opposes the upgrade, as does Ethermine.org, which controls 21.8% of Ethereum’s hash rate.
Flexpool, a small Ethereum mining pool that’s against the proposal, said it is like “Instead of giving the waiter a tip, you just burn it in front of him while laughing at him.” F2Pool, which controls 11.4% of the hash rate, supports the EIP.
Can we take this to mean that F2Pool would support 1559 (assuming it’s safe, has community support, etc. etc.)? — Tim Beiko | timbeiko.eth (@TimBeiko) January 20, 2021
“I don’t think miners are going to be long-term winners here. I think they’re gonna fight. But I think there are going to be long term losers,” said Ogilvie. Ethereum 2.0, the long-awaited Ethereum upgrade, transitions the blockchain from a proof-of-work consensus mechanism to a proof-of-stake one. The former rewards miners for processing transactions, the latter rewards people who hold lots of Ethereum.
“I think this is close to existential for a mining business,” said Ogilvie. “And so I think they’re going to take the strongest actions they can. How far are they willing to go? I can’t really predict. But I think I think you’re gonna see them fight extremely hard,” he said.
Tim Beiko, a ConsenSys product manager overseeing the implementation, told Decrypt that there isn’t much standing in the way of its implementation. “Like any other EIPs, if we find a serious vulnerability that could not be fixed in time, we would remove it, but aside from that, it would go into London,” he said.
Ethereum price primed for a swift recovery as the network prepares for a major update in July
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Ethereum price aims for a significant recovery towards $2,000.
A major upgrade scheduled for July intends to fix the problem with gas fees on Ethereum.
ETH miners are not happy with the decision.
Ethereum awaits a major upgrade called EIP-1559 scheduled for July to fix some of the problems with ETH fees. The smart-contracts giant has fallen below $1,500 but now aims for a recovery bounce.
Ethereum EIP-1559 could solve many of the current issues faced by users
Ethereum lead developer Tim Beiko had a call with core developers on March 5 and decided to schedule the upgrade for July. The proposal has been widely accepted by everyone besides the miners, as they are directly affected.
The proposal will change the current Ethereum’s fee structure to dynamically adjust the fees so users only pay the lowest bid for each block instead of miners prioritizing the highest bid.
Furthermore, the base network fee will now also be burned on each transaction, creating some deflationary mechanism for Ethereum. Despite miners not being happy about the proposal, it will move forward.
Ethereum price defends key support level and aims for major rebound
On the 3-day chart, Ethereum has once again defended the 26-EMA support level which has proven to be a significant support barrier since April 2020. The uptrend is intact and the key resistance point is located at $2,042, the all-time high.
ETH/USD 3-day chart
Around 12.25 million Ethereum coins are locked away from exchanges in DeFi protocols and projects as well as the Eth2 deposit contract. This represents almost 11% of the circulating supply of Ethereum.