Eth is expecting an update in July called London. The update has already begun to be implemented in test versions of the Ethereum blockchain, so relatively soon it will reach the mainnet, that is, the main chain.
The update also includes a proposal to improve Ethereum called EIP-1559, which at one time quarreled developers with miners and even made some of the latter think about creating problems for the blockchain.
Since the innovation was first proposed in 2019, there are many inaccuracies in its perception. Here are some common misconceptions about EIP-1559.
Why do you need EIP-1559
By tradition, let’s start with an explanation. Discussions about EIP-1559 are driven by the importance of the changes it brings to the network. In general, we are talking about changing the principle of forming commissions in the ETH blockchain. Now they work on the principle of an auction: that is, whoever offers a commission more, the transfer will be made faster.
Due to this feature, commissions in the cryptocurrency network sometimes fly off to inadequate heights – especially when traders massively sell or buy assets on the ETH network against the background of sharp changes in rates. For example, during the market crash on May 19, 2021, the usual transfer of ethers cost tens of dollars.
Naturally, for many users, these rates are not suitable. Especially taking into account the fact that during peak network loads, the transfer may not go through, and part of the commission will in any case be “eaten up”.
Therefore, the Ethereum developers have completely revised the approach to the formation of transaction fees. Now the network will have the concept of a base commission, which will increase or decrease in each block, taking into account the blockchain load.
If the gas target is higher than a certain level, that is, the network will be used too actively, the base commission will be higher – and vice versa. Most importantly, basic commissions will be burned, which means that the number of ethers in circulation, provided that the network is actively used, will decrease.
Also, users will pay royalties to miners – and this indicator can be changed at your discretion.
As a result, the task of EIP-1559 is to make the use of the Eth blockchain more intuitive for users – as well as the principle of the formation of fees. Now they will not grow so dramatically, and users will know exactly how much will be spent on paying commissions in the end. We wrote about the EIP-1559 topic in detail in a separate article. We recommend that you familiarize yourself with what is happening in the world of cryptocurrencies.
However, all this does not mean that high fees will disappear forever, and the Eth network will suddenly begin to cope with thousands of transactions per second. Here are the main inaccuracies that have arisen in the perception of the capabilities of the EIP-1559.
Myth 1: EIP-1559 is designed to reduce fees on the Eth network
First of all, EIP-1559 is needed in order to make transaction fees in Ethereum less volatile and more predictable. For this, the developers have introduced an algorithmic model that is able to automatically change the indicator no more than 1.125 times per block.
Average commission chart on the Ethereum network
After activating EIP-1559, commissions will decrease or increase based on the block size based on the gas goal indicator. If the blocks are filled with transactions too densely, the already mentioned base commission will increase by 12.5 percent and vice versa.
However, the problem of high fees in the Eth network is primarily caused by the limited bandwidth, because the blockchain in the current environment can handle only 30 transactions per second. And EIP-1559 does not affect this indicator in any way, so it will not rid the network of possible congestion and high commissions.
Ethereum’s throughput will grow to thousands of transactions per second after the network has fully migrated to the Eth2 version. Read more about the update process in the dedicated article.
Myth 2: EIP-1559 will make ETH emissions more predictable
As we have already noted, EIP-1559 will implement a base fee burn mechanism that can make ETH a deflationary asset. We are talking about situations when the load on the network will require an increase in the base commission. In this case, more coins will be burned than created – at least in accordance with the statements of the developers.
Burning was introduced so that miners do not deliberately overload the network with transactions in order to increase their own income due to increased fees. If there were no burning, such activity would really bring more money to ETH miners.
Since the fees on the network will change dynamically and automatically, it is impossible to predict the rate of emission of new ETH. This means that the asset can really become deflationary, but when this will happen, how long it will last and when it will end is unknown.
At the same time, it will be impossible to predict what will be the rate of emission of new ETH in general and the number of coins in circulation in the future. This is not bad, but the project’s long-term monetary policy will become less stable and predictable.
Myth 3: EIP-1559 will force miners to leave the network or attack it
As stated above, the base transaction fees will be burned and not rewarded to miners. In this regard, analysts predict a decrease in the income of ETH miners by at least 20-35 percent after the activation of EIP-1559.
In this regard, miners even submitted petitions and offered to increase the base reward for a block of cryptocurrency. It didn’t end with anything.
Due to the emergence of a certain animosity between developers and miners, some suggested that miners would want to take revenge on the Ethereum team and attack the network.
Most likely it won’t. First, the cost of carrying out a 51 percent attack on the Ethereum network within an hour is now the equivalent of $ 1.09 million, which is very expensive.
The cost of attacking the Ethereum network
Secondly, ETH remains one of the most profitable cryptocurrencies to mine. For example, here is the projected income of the owner of eight Nvidia GeForce GTX 1080 Ti graphics cards, according to the 2CryptoCalc calculator.
Most profitable cryptocurrencies to mine with eight Nvidia GTX 1080 Ti
Given the scale of the network, any attacks are likely to end only with the loss of the attacker’s money. In general, there are not so many interested in this.
Myth 4: EIP-1559 will deprive miners of the opportunity to receive MEV income
The growing popularity of high-frequency trading on decentralized exchanges like Uniswap allows miners to earn so-called additional income or MEV profit. Specifically, the 2Miners mining pool also pays out MEV profits, which increase miners’ income. This is done by changing the order of transactions in blocks or by not including them in a block at all.
According to analysts from the Flashbots project, the projected daily MEV-income of miners has grown from 500 thousand dollars at the beginning of the year to the current 6 million in June.
EIP-1559 will affect the income of miners due to the introduction of base commissions, but they will still have the opportunity to earn MEV income. Since the ability of miners to change the order of transactions in blocks is also not going anywhere.
conclusions
EIP-1559 will not turn out to be as powerful as some blockchain fans might have mistakenly imagined. However, the update will still have a significant impact on the user experience of interacting with the network. Transfer fees will become more predictable – which is nice.
Yes, ETH miners will see a decrease in basic income, but they will still have the opportunity to earn on MEV. In addition, the network will still not be immune from surges in fees due to the limited bandwidth of the blockchain, so we will probably face expensive transfers.
