There's water in the gas in the Ethereum miners (ETH) - Everything you need to know about EIP-1559

0 15

As you may already know, the fee system on Ethereum is far from perfect. In order to remedy this, developers would like to update it viaEIP 1559. On the other hand, not all miners, who will be the first to be impacted, are in favour of this change. Let us return together to the foundations of this debate that is stirring the Ethereum community.

Ethereum, how do fees work?

First of all, let's go back to the current operation of the fees on Ethereum.

For the time being, when a user wants to perform an action on Ethereum, whether it is a transfer or an interaction with a smart contract, they must specify a "gas limit"representing the amount the user is willing to pay for their transaction to be accepted.

In the current configuration, each new block is filled with transactions with the highest gas limit. As a result, many transactions remain stuck in the queue for long hours before being included in a block.

This leads to many problems in terms of network usability and predictability. Indeed, it is extremely difficult to predict when a transaction will be added to a block.

In addition, the fees are partly collected by the miners as a reward given the work provided. As a result, there is a possibility that a cohabitation of miners may resort to "selfish mining" (undermining only transactions they consider profitable, by revealing them later to the rest of the network).

EIP 1559 to change everything

Following several waves of congestion in the Ethereum network and, de facto, an explosion in transaction costs,the developers wanted to solve this problem.

Average USD fee changes since the launch of Ethereum - Source: Bitinfocharts

Thus, theEIP (Ethereum Improvment Proposal) 1559 was proposed by various Ethereum actors, such as its co-founder, Vitalik Buterin, or Eric Conner, founder of EthHub.

The aim of this proposal is to reform the fee system on Ethereum to make it more coherent and predictable.

Thus, with this EIP, Ethereum should see three types of transaction fees:

  • The "Base Fee": the basic fee to pay for any transaction. These will be calculated by the network based on its congestion. ;

  • The"Inclusion Fee": the share paid directly to the minor to reward him for his work;

  • The "Cap Fee": the maximum a user is willing to spend on their transaction.

Thus, during a transaction, the user (or more likely his wallet) will estimate the 3 types of fees. If the transaction does not consume all of the fees specified in Cape Fee,these will be refunded. Of course, theInclusion Fee belongs to the miner. And, great novelty, the Base Fee will be destroyed by the network.

The destruction of the Base Fee can create a virtuous loop between network usage and ETH's offering. Indeed, the more activity there is, the more ETH will be destroyed in the Base Fee,the less ETH will be put on the market. As a result, ETHs will become rarer.

In addition to changing the fee system, the network will be able to adjust the size of the blocks according to its congestion. This will allow the blocks to reach a capacity of 200%. In practice, this means that if the gas limit is 12.5 million, the blocks will be able to hold up to 25 million gas.

It is this parameter that allows the network to adjust the Base Fee. If the capacity of the previous block is greater than 100%, the Fee Base will increase. Conversely, if it is less than 100%, the Base Fee will decrease.

"The proposal of this EIP is to start with a base amount that is adjusted upwards and downwards by the protocol, depending on the congestion of the network. When the grid exceeds the block gas consumption target, the Base Fee will increase slightly. And when the capacity is below the target, it will decrease slightly. As these changes to the Base Fee are limited, the variation of the Base Fee from one block to another is predictable. »

Not all minors agree

As we have seen, this change in the fee system will have a significant impact on the income of minors. Unlike now, they will only receive a tiny fraction of the costs of a transaction.

As a result, it is not surprising to see many mining pools go against this proposal. In fact, about 30% of minors are against this proposal. Conversely, the main mining pools, such as F2Pool, which account for 11% of the ethereum network's power, have already supported the proposal.

At the same time, SharkPool, which until now had been rather supportive of the EIP, seems to be going backwards.

On the side of the critics, several arguments come up. For example, Stan Kladko, CTO of Skale Labs, identified 5:

  • Psychology: People are just not used to burning money. That would be unfair and wasteful. Some miners feel victimized, since the network prefers to burn money rather than give them this windfall;

  • Security: This proper incineration of fees will immediately affect network security, as the hash rate is paid by miners. Less money for miners could mean a lower hash rate;

  • Fairness: Cost cremation is good for whales because it can increase the price of the token, but is bad for miners. Thus, the rich will become richer at the expense of the people who secure the network;

  • Justice: the small miners have invested in their equipment. No one told them about the burning fee. Now they will earn a lot less money. Changing the rules could be unfair;

  • The risk of fork on ETH: many miners are so dissatisfied that they talk openly about forging the network.

This sentiment is also shared by Charles Spears, Vice President of Strategy at American BitPower:

"It is said that miners earn tons of money. And yes, the period is right now. But the GPU miners really took over for a few years, which just passed before our eyes. »

Statement by Charles Spears at CoinDesk

In the end, what should we think of it?

At this point, each side has a clear opinion on the issue, based on its interests.

On the one hand, miners are against this revision of the fee system, because it would lower their incomes,especially when we know that they have exploded in recent months.

On the other hand, the holders are in favour of the project, as this would result in a reduction in the supply of ETH in circulation,in the hope that this would have a positive impact on the price.

To better understand this dilemma, we contacted various players in the ecosystem.

For Marc Zeller, lad integrator at Aave, it is the one for whom wins with an eye on the future and Ethereum 2.0:

"I am in support, because it gradually makes ETH less inflationary, while retaining the majority of the income of the miners who secure the network. It's a perfect transition for years to come to poS [the proof of stake]. »

This opinion is supported by the Belgian miner Mr.-TK, well known in the cryptosphere for his videos of democratization of mining on YouTube. For him, this EIP remains an obligatory passage:

"This EIP is a 'must-have' passage if Ethereum is to be used again. Paying $20 in transfer fees does not seem sustainable in the long run, either with regard to democratization or its use."

However, its minor side can't help but come out:

"Obviously there is the pecuniary side that I think will potentially serve Ethereum. In my opinion, we are going to see a migration of miners to other corners, which will result in a loss of hash power and, as a result, a decrease in the security and decentralization of the network. »

He concludes by expressing his overall opposition to this new rule change, a point in common with Stan Kladko.

We also interviewed Brice Berdah, a DeFi aficionado invested in the Monolith and DeFi France projects and also known on social networks as TokenBrice. It considers that the stage for or against has already been exceeded:

"We're really not at the for or against stage anymore. The proposal has already received a very broad support from the community (including financial support via Gitcoin) and is already progressing. »

Thus, in his view, the debate is more about the impact of the various changes:

"Now we are more concerned about the impact of the new gas market management mechanism provided by this EIP. This could make gas prices much more predictable. »

Finally, his opinion echoes that of Marc Zeller on the benefits of a reduction in supply through the destruction of the Base Fee:

"Then, the EIP is part of a wider context of an increasingly rare ether, since locked on ETH 2.0, used in various DeFi app, etc. This makes some very optimistic about its potential impact on the price of ether - indeed, many people still tend to be skeptical of Ethereum: the news is only 'prayed' in the markets once absolutely confirmed, as we saw with the launch of Eth 2.0 Phase 0. »

Although the proposal has not yet been formally accepted, it could be added to the protocol in the second quarter of 2020. Therefore, the debate is far from over and it may well recall the dissension experienced during the DAO hack.

$ 0.00