Ethereum’s ‘EIP 1559’ Fee Market Overhaul Greenlit for July

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.

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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.

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.

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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

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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).

Moreover, a new revenue replacement is quickly becoming available for mining networks. Called miner extracted value (MEV), miners can take advantage of their place as arbiters in how blocks are packaged to “front-run” profitable trades. MEV is currently popular among decentralized finance (DeFi) traders who bid up gas prices to secure their place in the block. Many Ethereum mining pools are currently implementing MEV software to gather this untapped source of revenue.

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What Ethereum killer? On-chain data shows competitor networks are still behind

Ether (ETH) remains the second-largest cryptocurrency and it absolutely dominates the smart contract industry according to an array of network usage metrics. Even though the network has been overwhelmed by peak activity which is causing median fees to surpass $10, the network effect of its large user and developer base seems to be enough to sustain its position as the second ranked cryptocurrency by market capitalization.

Nevertheless, some key on-chain metrics are beginning to show a potential change in Etheruem’s supremacy, which raises the age old question of whether an “Ethereum killer” will be able to dethrone the top network?

Smart contracts Total Value Locked (TVL) ranking. Source: defillama.com

As shown above, the Ethereum network vastly dominates decentralized applications (dApps). Due to its high gas fees for transactions, when analyzing the number of active addresses, the Ethereum newtork appears to be at a disadvantage to its competitors.

Over the past week, FLOW blockchain’s NBA Top Shot had almost 80,000 active addresses which is five times larger than Ethereum’s Rarible NFT marketplace or even SushiSwap. Thus, the first data to analyze is the daily active addresses number across each blockchain.

Daily active addresses. Source: coinmetrics.io

The chart above shows that Tron (TRX) has recently surpassed Ethereum in daily active addresses, although this metric can be easily inflated. The Tron network has virtually zero fees for simple transactions which creates an unfair comparison.

By measuring effective transactions and transfers,it’s easier to exclude the addresses that are not contributing to the network.

Transactions and transfers, adjusted, USD. Source: coinmetrics.io

By doing this we can see that Tron doesn’t come even close to Ethereum’s numbers, although Cardano’s (ADA) recent price growth has led to a virtual tie between the two.

Oddly enough, the Tron network holds over 14.5 billion of the Tether (USDT) in circulation, which by itself should boost network usage metrics. Meanwhile, Cardano has 90% fewer daily active addresses than Ethereum, yet, both networks handle the same amount of transfers and transactions.

This is especially problematic as Ethereum handles 20 billion Tether tokens and also manages all the transactions of Chainlink (LINK), USD Coin (USDC), Wrapped ETH (WETH), and many others.

ETH, ADA, NEM, NEO, TRX market cap, USD million. Source: cointrader.pro

This data should, at least theoretically, be reflected in the market capitalization. Thus, it makes sense for Ethereum to dominate the ranking as no other network is even close to its decentralized applications.

Moreover, when analyzing the transfer and transactions' value, Ethereum leads by 50 times if we exclude Cardano’s questionable figures discussed earlier.

For the time being, the data suggest that the four “Ethereum killers” analyzed above are unlikely to “flippen” the Ethereum network anytime soon.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

3 Notes On EIP-1559 And How It Affects Ethereum • CryptoMode

The Ethereum network is slated to undergo a significant network upgrade in a few months. Through the London hard fork, the developers will release several improvements. One of those improvements is EIP-1559, which may not necessarily make everyone happy.

A Change In Ethereum TX Fees

The biggest change coming through EIP-1559 is adjusting how users pay transaction fees. More specifically, the current fees are issued to miners who validate transactions and include them in future network blocks. That situation will come to change, which is a good sign. Using Ethereum is often overly expensive, and transactions can take hours to process unless users cater to miners’ demands by paying higher fees.

With the help of EIP-1559, the current “auction system” for fees will be replaced by a standard rate. Known as “BASEFEE’, it will remain the same for everyone. However, it can increase or decrease depending on the overall network activity. For miners, this means they can no longer dictate the fees, which will undoubtedly annoy some of them.

Will Fees Even Decrease?

Given the current state of the Ethereum network and its high fees, this change is crucial. While it may not solve the scalability issues, it will help keep overall costs down slightly. More importantly, this can make the network more appealing to traders, developers, and corporations alike. No one wants to pay $100 for a transaction because “the miners say so”.

Whether there will ever be low fees is a different matter altogether. As the BASEFEE can still rise depending on network congestion, it will be interesting to see how high it can go. It is not unthinkable users will pay even more in gas fees than they do today. Until Ethereum 2.0 kicks in fully, these network costs will remain problematic for everyone.

Will Miners Revolt?

Such a change in miner earnings can prove problematic for many reasons. Miners may see this as a way to cull their power and reduce their earnings. However, no one knows what the new transaction fees will entail exactly. There is no reason for miners to question this upgrade until they have all of the necessary data.

That being said, several mining pools have uttered their criticism regarding EIP-1559. Some pools even openly oppose the upgrade, which may prove problematic. If more than 50% of the network doesn’t agree with this upgrade, it will not be activated. The coming weeks and months will prove rather interesting in this regard.