EIP-1559 is officially included in the Ethereum "London" hard fork upgrade | A brief discussion on the application and impact of EIP-1559 in the Filecoin network

It is reported that EIP-1559 has been officially included in the Ethereum "London" hard fork upgrade. In addition, at least 5 other EIPs will also be included. The "London" hard fork is expected to be launched in July. Next, we will analyze EIP-1559 and talk about the application and impact of EIP-1559 in the Filecoin network .

Why Ethereum should include EIP-1559

What is EIP-1559?

EIP-1599 is an improvement proposal on Ethereum, which mainly proposes a new on-chain fee pricing mechanism: changing the original transaction fee (collectively referred to as Gas fee in the industry) 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 basic fee and a miner fee.

Original charging mechanism: fee=GasPrice*GasUsed

EIP-1559 proposal: fee= (BaseFee+tip)*GasLimit

The basic fee will be dynamically adjusted according to the current usage rate of the network and will be destroyed directly. The basic logic is that when the usage rate of the Ethereum network exceeds 50%, the basic fee will increase; when the network usage rate is less than 50%, the basic fee will decrease, and the basic fee will fluctuate within a small range.

Why should Ethereum include EIP-1559?

Under Ethereum's original charging mechanism, miners receive as much as users pay, and miners can collect money even if message packaging fails. In addition, the "auction style" leads to a poor user experience. For example, if there is any type of network congestion, some people will increase transaction fees to increase processing speed as quickly as possible, which is "oppressive" for most small and medium-sized miners.

Ethereum "auction-style" gas principle diagram

Especially with the continuous development and growth of the Ethereum network and the increasing number of Ethereum ecosystem users, the busy network has led to an increase in transaction fees, which is inconsistent with the actual transaction consumption. The actual consumption of miners packaging transactions is fixed when the network is busy and not busy, but the transaction fees paid by users when the network is busy may be 10 times that of when the network is not busy.

Before launching EIP-1559, the Ethereum network used an auction model, namely a bidding auction, which led to overpayment of transaction fees. That is, users needed to bid when sending transactions, and miners packaged them according to the bidding rankings, resulting in the transaction fees paid by users often being too high.

Although the fees paid by users on Ethereum are all given to miners, this is very unfriendly to users who bear too much gas fee expenditure.

As Vitalik Buterin said, " 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. Miners seem to be the sacrificed party. The main income of miners currently comes from users on Ethereum. If users are lost, the income will be lost. For users, miners are replaceable. There will be new miners on the Ethereum network that agrees to the EIP-1559 proposal ."

What impact will the implementation of EIP-1559 have?

First, EIP-1559 will affect the gas income of miners . Because the original setting is that this part of the income is given to miners, and after adopting EIP-1559, this part of the income will be burned directly. And we know that when the network is very busy, sometimes the gas income may exceed the block reward. Therefore, the implementation of EIP-1559 reduces the income of miners.

Secondly, it helps to increase the value of a single ETH . In the ETH network, gas fees are charged based on ETH, just as in the Filecoin network, gas fees are charged based on FIL. As transactions on the Ethereum network prosper, the amount of base fees destroyed will be greater than the amount of new issuance, and ETH will move towards a deflationary model, which will increase the scarcity of ETH and thus increase the value of a single ETH. Therefore, for miners, although the number has decreased, the price has increased, so the total income may not decrease too much, at least far less than the estimated 50%.

Finally, the transaction costs of the Ethereum network are expected to be reduced . The original model is an auction model, so when the network is busy, the transaction costs of users are actually very high. The implementation of EIP-1559 will definitely benefit the users of the ecosystem, because it may be able to reduce the transaction costs of the network. The transaction of network transaction costs will help maintain and enhance the strong Ethereum developer ecosystem. After all, if there are no developers and no excellent applications, miners will not be able to obtain such considerable gas income. Therefore, miners who reduce the transaction costs of the Ethereum network are beneficial to users and all ecological developers.

Application of EIP-1559 in the Filecoin network

Anyone familiar with Filecoin knows that although EIP-1559 was proposed by Ethereum, it has been innovatively running on the Filecoin network for nearly half a year.

Why does the Filecoin network use EIP-1559?

For the distributed storage network Filecoin, the first thing to ensure is the smooth development of the network. After all, Filecoin officials value network security the most . Filecoin is particularly suitable for certain types of transactions that are very fast and need to enter the blockchain at a regular rhythm. EIP-1559 is very attractive to Filecoin and is very consistent with the design elements of the Filecoin network:

• Efficiency. EIP-1559 builds a more efficient model for setting and calculating gas;

• User experience. The estimation and cost setting are simpler and more reasonable than the "bidding auction" method;

• Critical message throughput. WindowPost messages in Filecoin are time-critical and must be processed in a way that is highly resistant to congestion. EIP-1559 provides higher reliability and throughput for such messages;

• Transactions reward the network. The entire network bears the cost of processing transactions and should be compensated accordingly.

Therefore, Filecoin incorporated EIP-1559 into its core protocol with minor modifications and applied it to the Filecoin network after the mainnet was launched.

How does the Filecoin network using EIP-1559 run?

We can see on the browser that the gas fee of the Filecoin network fluctuates, and the price difference can be as high as 10 times. This makes miners exhausted to some extent. As the number of miners in the Filecoin network continues to increase, more and more cars are driving on the Filecoin network highway, the Filecoin network is becoming more and more crowded, and the price of gas fees is also rising.

Gas fees are different from staked coins. Gas fees are directly burned, while staked coins will be returned. Miners must pay gas fees for mining and message packaging and uploading to the chain. Gas fees are in FIL units, which means that miners need to buy FIL for gas consumption and staking.

What does this mean?

This means that the implementation of EIP-1559 makes Filecoin's economic model have the characteristics of destruction deflation. Although coins are produced every day, a large part of FIL is destroyed as gas, and a part of FIL is staked as collateral. The Filecoin network has also designed a linear release mechanism. Therefore, the implementation of EIP-1559 has created a destruction deflation model for Filecoin.

As stated in the Filecoin official blog, EIP-1559 has been implemented and exists on the Filecoin mainnet, and currently, about 100k to 150k FIL is consumed every day due to network transactions. EIP-1559 has achieved at least two key victories:

• Fast lanes for high-value transactions . At times, storage onboarding messages can threaten the price of more time-sensitive WindowPost messages. However, as expected, integrating EIP-1559 provides Filecoin participants with a straightforward mechanism to resolve this congestion issue without always paying a high price.

• Network capacity management . So far, EIP-1559’s base fee mechanism has done a good job of keeping network capacity at 100% of its target.

Of course, there is still some room for improvement in EIP-1559 on Filecoin. Filecoin officials are also actively researching various methods to solve the gas pricing problem:

• Gas control plane. One possible way to solve network congestion is to separate the control plane from the data plane, create dedicated channels for transactions, and leave a portion of each block for critical specific messages;

• Message type fee structure. Another way to solve this problem might be to reduce the cost of WindowPost, or increase the cost of other messages (especially Pre/ProveCommit messages);

• Basic fee change rate. The basic fee rate change curve is too steep over time. Other methods unrelated to the Gas model can be introduced to help alleviate congestion and make the curve change smoother.

• Expanded proofs. Ideas for expanding Filecoin’s proof mechanism include batch verification of SNARKs to reduce the amount of verification that needs to be done in advance;

• Scaling consensus. Given the current congestion rate, Filecoin may need to accelerate the adoption and implementation of the sharding mechanism in Filecoin.

Every step forward is a new feat. Although the application of EIP-1559 burns gas fees, the reduction in quantity also helps to create a deflationary model, which is conducive to price increases, and is especially conducive to the smooth and efficient development of the network, attracting and accommodating more excellent ecosystems, and ultimately promoting the development of the Filecoin network.