Will the implementation of EIP-1559 bring more benefits than disadvantages to Ethereum?

Recently, at the Ethereum core developer meeting, developers agreed to add EIP-1559 to the Ethereum London upgrade. In addition, at least 5 other EIPs will also be included in the Ethereum London upgrade, which is tentatively scheduled to be implemented in July 2021.

In order to solve the current high gas fee problem, Ethereum has been holding continuous meetings and discussions, with controversies arising from time to time. This dispute is quite similar to the Bitcoin fork .

However, EIP-1559 will not be the final solution. Only when Layer 2, Ethereum 2.0 and various EIP proposals are implemented in parallel can Ethereum's gas fee be used by the public and more people be involved, so that the public will not choose other public chains due to the high cost of high-quality products. This is the issue that needs to be considered today.

Seeing that BSC, HECO, FLOW and many other public chains are constantly diluting Ethereum's traffic and disputes between users and miners continue, the initiation and passage of each proposal is particularly important during this difficult transition period.

However, the passage of EIP-1559 is only a delaying tactic. Today, I will tell you about the impact of this proposal based on the specific implementation of 1559.

What is EIP-1559?

Ethereum Improvement Proposal #1559 (EIP1559 for short) proposed a new on-chain fee pricing mechanism: changing the original gas fee from "auction-style" pricing to a "market exchange rate" pricing mechanism, linking the fluctuation of the fee to the block capacity, and the gas fee will be split into a base fee and a miner fee.

The basic fee will be dynamically adjusted according to the current network usage and will be destroyed directly. The basic logic is that when the Ethereum network usage exceeds 50%, the basic fee will increase; when the network usage is less than 50%, the basic fee will decrease, and the basic fee will fluctuate within a small range. In addition, the mining fee still belongs to the miners who package the transaction information, and the pricing mechanism of the mining fee remains unchanged, and the Gas Price and Gas Used are set by the user.

Next, let’s take a look at the impact that EIP-1559 will bring:

(1) The destruction of the base fee reduces the circulation of ETH and gives ETH a higher value. As the transactions on the Ethereum network prosper, the amount of base fees destroyed will be greater than the amount of additional issuance, and ETH will move towards a deflationary mode, increasing the scarcity of ETH and thus increasing the value of a single ETH.

(2) Change the pricing model of Ethereum network gas fees, and shift the dominance of transaction confirmation from miners to transaction creators. For a transaction on the Ethereum network, miners can choose "high-priced" transactions under the old gas fee pricing mechanism, so transaction creators have to increase gas fees, forming a vicious cycle. EIP-1559 will ease this mechanism. Transaction creators can set a base fee based on the urgency of the transaction, which means that the dominance of transaction packaging will shift from miners to users, and the network congestion problem will hopefully be alleviated.

(3) The transaction costs of the Ethereum network are expected to be significantly reduced.

In fact, these impacts ultimately benefit the general public. For miners, their interests are affected, which leads to conflicts before the implementation of EIP-1559.

Now that it has been confirmed, there will not be any major changes in the short term. We still need to look forward to the implementation after July, as well as the progress of Layer 2 and ETH 2.0. This is the key to our convenient use of decentralized applications.