The problem of high fees on the Ethereum network really exists now. As soon as, due to some events, the owners of tokens undertake to conduct transactions in large quantities, the cost of sending cryptocurrency increases significantly. However, network bandwidth is limited, so users are forced to pay more to be at the top of the queue for a transaction to enter a block. If you specify an insufficient amount, the transaction can get stuck for many hours.
The integration of the long-awaited EIP-1559 update will result in “massive amounts of ETH being burned.” This was stated by the developer of Ethereum Core Eric Conner, who commented on the prospects for the implementation of the update the day before. Recall that EIP-1559 is an important update for Ethereum, designed to move the network from an auction model of generating commissions to automatically calculating fees to miners for transactions taking into account the load.
Well, if you do the same when exchanging coins on the Uniswap decentralized exchange, there is a risk of losing funds without a swap. Still, gas is burned to start the work of a smart contract, and if there is not enough gas, the process simply stops.
The last time Ethereum users faced the problem of too high commissions was in mid-September. Then the Uniswap platform rewarded its early customers with free tokens that could be exchanged for about 1-3 thousand dollars, depending on the rate. As a result, they started selling coins, which practically stopped the network. Swaps that day cost about $ 50, although with a normal load on the blockchain, you can pay $ 2-5 for them.
As a result, September 17 became the day of the greatest load on the Ethereum network. During the day, users made 1.4 million transactions.
Ethereum Transaction Graph
Why do you need EIP-1559
According to Conner, the integration of the upgrade will lead to the burning of a large number of Ethereum coins and a decrease in the emission level of the cryptocurrency.
To understand exactly what this is about, let’s understand the essence of EIP-1559. Now Ether users can manually set their own fees for “gas”, that is, in fact, the commission paid to miners for including a transaction in a block. However, this allows wealthy users to offer higher rates, leading to two major problems: network congestion and sky-high transfer fees.
Such disadvantages limit the development of the Ethereum ecosystem. But EIP-1559 will bring something new. Under this proposal, the network will automatically bid “BASEFEE”, which adapts to network activity, providing a set rate for all transactions. In other words, the network will self-regulate, providing block size flexibility and greater blockchain security.
It is important to note that this is not the only situation in which the network can regulate its own activity. In particular, the updated Ethereum 2.0 independently punishes validators for violations of the network rules.
EIP-1559 can also lead to deflation. As gas is consumed, most of this ETH will be burned, which in the long term may even lead to a decrease in the amount of ether. Thus, the developers “will kill two birds with one stone: reduce the load on the network and get rid of investors’ fears about” high inflation “.
Ari Paul, a representative of BlockTower Capital investment firm, praised the efforts of the Ethereum Foundation, noting that the reduction in ETH emissions will strengthen investor confidence in the project. Here is Paul’s line from Decrypt.
The supply-by-use reduction is a simple and compelling narrative about why all types of platform activity will bring long-term benefits to investors.
Note that this update is applicable only for the network in its current form, that is, on the Proof-of-Work consensus mechanism. When Ethereum fully switches to Proof-of-Stake, which should happen in 2021-2022, there will be no need for this update. However, for now, the developers want to unload the network and facilitate user activity.
We believe that the update is truly important and that all netizens will benefit from it. Still, Ethereum will work on PoW for at least another year, which means that there will be enough time for situations with a high network load to form. Therefore, in this case, traders will save on commissions, and investors will be convinced of the prospects of the cryptocurrency project. Especially if the new mechanism does indeed lead to deflation of the ETH supply.