EIP-1559 is a transaction pricing mechanism that includes “fixed-per-block network fees” on Ethereum (ETH), the world’s largest blockchain platform for building decentralized applications (dApps) and the second-largest chain in terms of activity and market cap (trailing only Bitcoin). EIP-1559 proposes that the fixed-per-block TX fee is “burned and dynamically expands/contracts block sizes to deal with transient congestion.”
As a result of these proposed changes, transaction fees could be a lot more predictable for Ethereum users. This may prevent potential cases of users submitting transactions using a “safe” gas price and then find out that their TX is stuck (or pending for a long time) or completely fail as the cost for a “safe” TX may increase significantly after their submission.
EIP-1559 aims to introduce the following “benefits” to the Ethereum blockchain or distributed ledger technology (DLT) network:
A key aspect of this new fee system is that ETH miners only receive the inclusion fee. The base fee, under this proposal, would always get burned (that is, it gets destroyed by the protocol itself). This should ensure that only Ether tokens may ever be used to pay for transfers on the Ethereum network, which would support the economic value of ETH tokens within the Ethereum ecosystem and also reduce risks involved with miner extractable value (MEV).
This burn also aims to counterbalance Ethereum network inflation while still awarding the block reward and inclusion fee to ETH miners.
Ensuring the miner of a Ethereum block doesn’t get the base fee is vital since it effectively removes the miner incentive to manipulate the TX fee in an attempt to extract even more fees from network users.
Eric Conner, Founder at EthHub, notes that EIP-1559 requires “a history lesson because it’s a bit revised right now.”
EIP-1559 needs a history lesson because it’s a bit revised right now. Here it goes…
In early 2019 I finally hit peak frustration at how horrible Ethereum’s first-price auction model for fees was.
I truly thought (and still think!) it was the #1 barrier to mass adoption.
— eric.eth (@econoar) February 10, 2021
“In early 2019 I finally hit peak frustration at how horrible Ethereum’s first-price auction model for fees was. I truly thought (and still think!) it was the #1 barrier to mass adoption.”
Conner claims that this frustration was “purely a user experience one” and that it didn’t have anything to do with the “thought of burning fees.” He also revealed that he had conducted research on what had been discussed regarding these issues.
“After a lack of response there and digesting [Ethereum co-founder] Vitalik Buterin’’s paper, I figured that was the best option and reached out to him. He helped walk me through it and we wrote EIP-1559.“
“It’s important to note that burning the BASEFEE is only a technical side note in the paper… The focus was purely on improving the user experience and fixing the gas market’s inefficiencies. Why am I writing this? Well, it’s a bit frustrating that the entire narrative for 1559 has been shifting to ‘this is good because it burns ETH.’ That’s a nice side effect but it’s NOT the reason we should be implementing it. So yes it’s great we may burn some ETH but people are going way overboard on expectations here. It’s not all parts of every fee that is burned and once we have scaling, fee burn will be even less.”
A byproduct of the overall design of this Ethereum improvement proposal is that the new “base fee” gets burned instead of being paid out to ETH miners. Although TX fees keep rising to really high rates (leading to large overpayment for maintaining blockchain network security), ETH miners aim to protect inflated costs to end-users at the “expense of the overall user-experience of Ethereum.”
Even though the implementation of EIP-1559 may “minimally” reduce income (in most estimates reverting it back to levels that were prevalent months ago), a “vocal minority of miners led by Flexpool wants to increase the base fee of EIP-1559 and continue to extract painfully high fees from users in order to line their own pockets.” Flexpool has reportedly “expressed no concern for the overall health of the Ethereum network and the damage that could be done by solidifying oppressively high fees as part of the network protocol.”
As noted on the https://supporteip1559.org/ website:
“If you are an Ethereum 2.0 validator please consider changing your graffiti tag to #SupportEIP1559. Also, please consider sharing this website as a resource to educate others and get them involved in pushing back against harmful rent-seeking on the Ethereum network. Lastly, if you are a miner who supports EIP-1559, consider switching to a pool that has endorsed EIP-1559 in order to ensure that your hashpower is promoting the overall health of the Ethereum network.”
Flexpool is a pool that may be doing their “best to push for accommodation in a friendly respectful manner” while operating the site https://stopEIP1559.org which includes “inflammatory commentary” like:
- “Ethereum developers initially needed miners for their coin but once successful they’ve thrown them under the bus.”
- “They [Ethereum Developers] cared about miners when Ethereum lacked mining support, and once they received it, they started to mistreat them.”
- “The developers and big mining pools had forgotten where they came from and supported them when they started out. Remind them that your [sic] not a dog. Take your business elsewhere.”
Notably, Ethereum is in the process of transitioning from a proof of work based consensus model which requires computing resources to mine and validate transactions to a proof of stake based consensus model, which will also be able to verify transactions but not require any mining.
Since Ethereum is a decentralized community, there’s no “official” authority that has complete control over how the blockchain network is upgraded. In a manner that’s similar to other decentralized cryptocurrency protocols like Bitcoin, the Ethereum developers and community members regularly draft proposalS, which aim to suggest codebase modifications to these permissionless DLT networks.