[ChainDD Exclusive] The Ethereum community continues to split, and EIP-1559 cannot save the high GAS fee and network congestion

It has been 10 days since EIP-1559 was officially included in the Ethereum "London" hard fork upgrade. This controversial proposal has been settled, but the core interest groups involved in the proposal, miners and community developers, have not reached a consensus, and strong opposition continues to spread in the community.

After the proposal, some miners even planned to initiate a computing power transfer and shift their mining power to mining pools that opposed the EIP-1559 proposal.

Although YouTube KOL user Bits Be Trippin later explained that the computing power transfer plan was a well-intentioned "show of force" and was not intended to attack the network, it also confirmed the huge differences and contradictions within the community.

Since then, miners have continued to raise discussions in an attempt to resist EIP-1559. On March 13, miners proposed proposal EIP-3368 targeting EIP-1559.

The proposal suggests increasing the current block reward of the Ethereum network from 2 ETH to 3 ETH, and then reducing it slightly each block until it is reduced to 1 ETH reward per block after 8,000,000 blocks (about 2 years).

The idea of ​​the proposal is to implement EIP-3368 together with EIP-1559. Ethereum developer Tim Beiko said that the EIP is not currently accepted or planned for a fork. It is only a proposal at the moment and seems to be the most concrete content of the miner dialogue in the past few weeks.

While this suggests that some miners and developers may be ready to reach some form of compromise, discussions on the Ethereum community forum about the EIP-3368 proposal show that the Ethereum community is still divided.

Why is EIP-1559 opposed?

As early as March 2019, when Vitalik and others proposed EIP-1559, it had already caused huge controversy in the community.

Because it involves Ethereum expansion and GAS fee issues, EIP-1559 has been the most watched proposal in the past two years. At present, the EIP-1559 code phase has been temporarily completed, and only the block size test is required. It may be implemented this year.

The core of EIP-1559 is to try to adjust the Ethereum network transaction pricing mechanism. Currently, the Ethereum GAS fee adopts the market auction principle. In short, the higher the transaction fee given by the user, the priority his block will be packaged.

As the price of Ethereum rises, this pricing model allows miners to continue to earn huge profits, but it is extremely painful for users.

On February 20, according to OKLink data, the median transaction fee on Ethereum in the past 24 hours reached 224Gwei, setting a recent high.

Among them, the transaction fee for token transfers between ordinary addresses is around US$7-10, while the interaction fee with contracts such as Uniswap and Compound is as high as US$40-60. The transaction fee is approximately US$27.4784 million, accounting for 56% of the income of Ethereum miners.

Based on this background, in the EIP-1559 proposal, the GAS fee is divided into two parts: the base fee and the tip.

The basic fee will be destroyed and miners cannot obtain it. In times of congestion, tips are used to incentivize miners to pack user transactions into blocks, similar to the current market pricing principle. When EIP-1559 is implemented, miners' income will mainly come from new block rewards and tips. This is also the main reason why miners oppose the proposal.

According to analysis by the Ethereum community, if the EIP-1559 proposal is passed, the miners’ coin production will drop by about 30% to 50%. Ethereum founder Vitalik Buterin once said in the community that the greater significance of EIP-1559 is to allow each transaction to be confirmed within 1-2 blocks.

If some miners leave, new ones will come. If miners launch a 51% attack, they will all be transferred to PoS as soon as possible. This means that between miners and users, miners are the party that can be sacrificed and replaced.

The original intention of EIP-1559 was to reduce GAS fees and alleviate network congestion, but it also has another direct impact, which is to support the value of ETH tokens.

Since last year, ETH has risen from around $150 to a high of $2,000 at the beginning of this year, an increase of more than 10 times. ETH is also considered one of the tokens with the greatest growth potential. The growth of ETH naturally comes from the value generated by the transaction volume and locked volume of the Ethereum network on DeFi last year.

After the implementation of EIP-1559, the base fee will be destroyed. Considering the transaction volume on Ethereum, the amount of ETH destroyed to pay for GAS fees may increase, which will reduce the inflation rate of ETH to a certain extent, and may even lead to deflation. This is ultimately beneficial to the value support of ETH.

In the short term, the solution to high GAS fees and congestion still depends on the progress of Layer2

The essence of mining fees is determined by the relationship between supply and demand. Currently, the demand is strong, but Ethereum's supply capacity cannot keep up, so the implementation of EIP-1559 may ultimately have little effect on solving GAS fees and congestion.

Pan Zhibiao, the founder of Biyin, also publicly stated that EIP-1559 is a useless solution and does not solve the problem of network congestion. The roadmap has also made it clear long ago that it will eventually turn to PoS and ETH2.0.

ETH2.0 introduces POS and sharding technology, which will increase the throughput of the base layer, but distant water cannot put out a nearby fire. The current expansion still depends on the progress of Layer2.

The advantages of the Layer 2 solution are faster transaction speed (although the confirmed intermediate state is not as secure as the main chain state), lower transaction fees, and smaller main chain node burden.

Layer 2 expansion technologies are mainly divided into state channels, sidechains, Plasma, Optimistic Rollup, ZK Rollup, and Vadium. Among them, Rollup is the most popular expansion technology currently and is highly praised by Vitalik Buterin.

Rollup is mainly divided into two technical routes: ZK Rollup and Optimistic Rollup. The former uses zero-knowledge proof, and the latter uses fraud proof. Currently, these two Rollup technologies are also the most secure Layer 2 paths.

The advantage of Optimistic Rollups lies in its general computing. Compared with the specific application scenarios of ZK Rollup (payment, transaction), almost anything that can be achieved on Ethereum can be implemented equally on Optimistic Rollups, including the composability of smart contracts such as DeFi.

The advantage of ZK rollup is its security. It introduces zero-knowledge proof technology, which allows all calculations to be performed in batches off-chain. It only needs to submit a zero-knowledge proof to Ethereum for verification (Ethereum will verify these proofs) and store enough data to accurately determine the status of off-chain accounts. It has Ethereum-level security.

Currently, the Layer2 projects that perform relatively well on the market include Optimism, ZKSwap, zkSyn, Offchain Labs (Arbitrum Rollup) and Loopring.

ZKSwap is a project that has performed relatively well in the Layer2 ZK rollup technology route in recent times. It is based on the Layer2 AMM protocol of ZK-Rollup and currently supports GAS-free real-time transfer and exchange services for more than 60 mainstream ERC20s.

The team is currently developing the ZKSwap V2 version. In addition, the ZKSwap team also plans to support the general EVM to build the ZKSwap Layer2 ecosystem, making it easier for other developers to build Layer2 DeFi applications.

According to data from zkswap.info, as of 20:30 on the evening of March 16, the assets locked in the ZKSwap chain (TVL) exceeded US$880 million, the liquidity exceeded US$760 million, the number of Layer2 accounts totaled 84,340 accounts, and the 24-hour Layer2 transaction volume reached US$150 million.

In addition, Optimism is also a Layer 2 seed project that deserves great attention. On February 24, it announced the completion of a $25 million Series A financing round. The investor is the well-known VC Andreessen Horowitz (a16z). It had previously received $3.5 million in seed round financing from Paradigm and IDEO.

Since the Optimistic rollup solution adopted can more easily support general smart contracts, many DeFi projects can achieve seamless Layer 2 migration faster.

According to Vitalik and others, Optimism's mainnet may be launched in March, at which time Synthetix will be able to achieve full migration and related transactions can greatly reduce transaction fees.

Finally, the original intention of EIP-1559 is good, but the final result may not be what Vitalik expected. It will neither significantly reduce transaction fees nor fundamentally solve the problem of network congestion.

At present, the most significant change brought about by the implementation of EIP-1559 may be a more user-friendly trading experience. As for alleviating network congestion, it still depends on the progress of Layer2 this year.