London hard fork – what EIP-1559 will change for Ethereum ETH miners

All those who are in one way or another connected with cryptocurrency mining have heard about the upcoming change in Ethereum. This is a hard fork codenamed «London» containing the so-called EIP-1559, the topic of which we have already discussed in a separate article.

Now let’s take a closer look at how the innovation will affect the ETH miners.

There was a lot of controversy surrounding this change. On the one hand, it is aimed at expanding the capacity of blocks: which means that in situations where a large number of transactions are published to the network, it will be possible to avoid a long wait for them to be sent. It also offers a simple solution for calculating the cost of gas when publishing transactions.

It was the last change that generated a lot of controversy among the mining community. But before describing the problem in more detail, let’s briefly recall what gas is on the Ethereum network and what its cost affects.

How transactions are performed on the Ethereum network

Any transaction on the network – whether it is a simple transfer of tokens or funds or working with a smart contract – is a set of operations in a special machine language developed specifically for Ethereum and executed by its EVM virtual machine. Each operation has its own price, the more complex the code needs to be executed, the more “expensive” the transaction is for the computer verifying it in the blockchain. Usually this is a mining pool that forms new blocks, including these transactions in them.

To compensate for the machine time, the concept of gas and its cost was invented. The cost of a unit of gas for a transaction is set by the person who sends the transaction. The higher the cost per unit of gas, the more likely miners will include your transaction in the next blocks.

In situations where the network is too busy with a large number of transactions waiting to be sent, the senders had to set an increasing cost per unit of gas so that their transactions get into new blocks as soon as possible. This gave rise to a cascading effect, when each new transaction was published with a gas unit cost higher than the previous one.

The miners, of course, liked this story, because the higher the cost of one transaction, the more profit from each mined block.

Recall that it is 2 ETH of the base reward per block plus the sum of all fees for transactions included in this block.

ethereum mining block

Ethereum block reward

But ordinary users were uncomfortable. Not only did you have to overpay for sending a transaction in situations of network congestion – and they happen more and more often due to the increase in the number of smart contracts and the popularization of the coin in general – it is also unclear exactly what gas price needs to be set in order for your transaction guaranteed to be shipped as soon as possible, rather than hanging a watch on the waiting list.

And this is not to mention those situations where sometimes users, manually entering the cost of gas in an attempt to promote a transaction, made an order of magnitude mistake and sent, for example, 1 ETH with a commission of 10 ETH.

EIP-1559 – a new concept of conducting transactions

The answer to this was EIP-1559 . He proposed to introduce a new concept in the form of the base cost of gas – a fixed value that smoothly changes depending on the congestion of the network. That is, if there are few expected transactions, the base cost gradually decreases, as soon as there are more of them, it gradually increases.

From now on, when sending a new type of transaction, the base cost of gas multiplied by the amount of gas spent is used for calculation – no more and no less. Thus, the possibility of errors with sending transactions with a disproportionately large commission is excluded, and it is easier for wallet programs to calculate the cost of commissions, since they are formed according to a fairly simple and predictable scheme. The transactions of the new type are called «transaction type 2», and the canonical ones are called «transaction type 0».

Don’t ask what happened to type 1 transactions.

eth transactions cryptocurrency

ETH transactions

However, in addition to the above, it was proposed to “burn” the commissions formed in this way, that is, the coins spent on the formation of transactions will disappear irretrievably. Thus, a deflationary model will be created, which, in theory, can make the value of ETH higher in the future, because the number of coins in circulation will grow more slowly than it is now. However, this also means that miners will no longer receive profit generated from the amount of commissions, remaining only with the basic block reward of 2 ETH.

This was the reason for heated debate, and in order to sweeten the bitterness of parting, the concept of «tip» was also added – a certain small amount on top of the standardized commission, so that it would be more interesting for miners to include your transaction in the block.

At the same time, mathematical calculations are made in such a way that a very small amount is enough for the transaction to be guaranteed to fall into one of the following blocks. This means that we are not talking about any significant amounts – they are expected in the amount of 1 to 9 gwei.

In any case, it was still decided to accept EIP-1559 and launch it during a hard fork called London on block 12,965,000. It will take place today.

london ethereum hard fork

Countdown to London hard fork

How miner fees are burned

How exactly are coins spent on commission burned? The total amount of gas of all transactions included in the block is taken, multiplied by the base gas cost for this block, and this amount is irrevocably destroyed. For new type 2 transactions, this will be exactly the entire amount of the transaction fee – not counting the tip, if any. For older transactions, since the cost of gas is much higher for them, this will only mean a fraction of the total commission.

At first, the decrease will not be too noticeable, as major wallets and other clients will continue to send old-type transactions, the fees for which will not be completely burned.

Let’s take a look at what’s happening on the Ethereum testnet called Ropsten – specifically at block 10,774,793 . It contains only two transactions. The first transaction is of type 0 and the second is of type 2 .

ropsten ethereum cryptocurrency

Ropsten network transactions

The base gas commission was 10 wei – 0.00000001 Gwei.

Since the block contains 2 transactions of 21 thousand gas each, 21,000 * 10 * 2 = 420 thousand wei – this is exactly how much was burned in this block, that is, 0.00000000000042 ETH. Not scary, right?

eth cryptocurrencies blockchain

Volume of ETH destroyed

How will the reward of miners change?

What does this mean for us as miners? First, the profit generated from Ethereum mining will gradually decline. Still, the more type 2 transactions will fall into a block, the more commissions will be burned, respectively, reducing the income from each found block. Fortunately, thanks to the Eden Network (formerly known as the Archer DAO), the 2Miners mining pool will continue to keep the ETH miners’ reward as large as possible with MEV profits .

Secondly, as the number of type 2 transactions in the network increases, the 2Miners pool will have to go to them, respectively, all payments to miners will at some point be made at their expense, subtracting the cost of the transaction from the amount to be paid.

Currently, 2Miners leaves everything as it is – that is, payments to miners at the expense of the pool, but in the future, the pool management will carefully monitor the state of the network and make an announcement, additionally introducing new features. In particular, it will be possible to specify the minimum payment amount individually, so as not to lose money on frequent payments.

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