Ethereum EIP1559 errata: It will not necessarily reduce miners’ profits

Regarding Ethereum EIP1559, discussions have never stopped since the proposal was put forward in 2019. Some miner groups have taken sides, and some even say that the proposal may lead to a hard fork of Ethereum after it is officially implemented.

EIP1559 is no longer a proposal, but an event. Some mining and media have fanned the flames, and there are many erroneous interpretations. Some miners believe everything they hear, and the fluctuation of public opinion is greater than the fluctuation of Ethereum price. Today we will try to talk about EIP1559.

ETH's current gas and miners' income

https://etherscan.io/

This is what you see when you open the Ethereum browser today. The transaction fee (gas fee) plus the inherent reward of the block is the data shown in the picture, 4.03, 3.69, 3.98 ETH, etc. In other words, nearly 50% of the money miners earn from mining ETH is gas fees.

Some of the miners’ thoughts are expressed in words as follows:

• “I heard that EIP1559 is going to cut some of our miners’ rewards. How can this be possible? I have bought so many hardware devices. If the income is reduced, won’t it hurt my interests?”

• "We mined 1,500 US dollars from your ETH worth 1 US dollar. We made money from mining, but our greater contribution was to maintain the normal and safe operation of the entire Ethereum network. Now that you have become successful, do you want to get rid of us?"

• “EIP1559 is useless. It reduces the income of miners and cannot fundamentally solve the congestion problem of Ethereum. I don’t want to support it.”

Some mining pool miners (such as F2pool) also support EIP1559, believing that it is a proposal that is beneficial to the entire ecosystem. However, it is also normal for negative news to spread faster than positive news.

EIP1559 Understanding Errata

This proposal is actually quite simple. Now and in the past, each transaction on the Ethereum network requires some fees. This fee fluctuates greatly, ranging from a few dollars to hundreds of dollars, depending on the congestion of the Ethereum network. This fee is called: gas fee.

EIP1559 proposes to change the gas fee to "base fee + inclusion fee". The base fee is burned directly, and the tip is given to the miners, so the miners feel "very hurt". Let's look at what the proposal says:

EIP1559 proposal link: https://github.com/ETHereum/EIPs/blob/master/EIPS/eip-1559.md

The content in the red box means: users do not need to adjust gas manually, because the base fee is predictable, the wallet will automatically adjust the appropriate overall fee and display it to the user, and miners can only get tips.

Miners’ doubts are inevitable, because the proposal itself is intended to “please users.” What the hell is a small inclusion fee? Are you sure it’s small?

EIP1559 explained in simple terms:

• The ETH network is like a road. Before, whoever offers the highest price can go through, and whoever has the highest gas fee can go through first. The result is congestion.

• EIP1559 sets up a toll station. You can see the basic toll displayed on it in advance while driving. After receiving the basic toll, you can use a lighter to burn it.

The basic fee is the same for everyone for a period of time, and then you still want to pass quickly, so you pay a tip to give priority. The basic fee usually takes up a small proportion of the overall fee (a little bit), but when it is particularly congested, it will increase exponentially, so that everyone will not come at this time, and the tip ratio will appear very low - but this is a specific situation. For most pedestrians, the tip may be quite a lot, but it will not be as high as the gas fee before.

After understanding the above logic, we can infer three points:

First, EIP1559 is a transitional solution, which is likely to solve some of the congestion problems on the current ETH main network . If the road is not widened, congestion will occur from time to time. Changing the charging method only solves some problems from the economic model, but does not solve the problem from the infrastructure.

Second, the tip is not necessarily small . The translator of the basic fee and the tip (less responsible) and the author of the EIP1559 proposal (more responsible) are all responsible for misleading public opinion. The tip seems to be small and the basic fee seems to be high, but it is not the case. It is very likely that most of the time, the basic fee is not high and the tip is very high, or the proportion of the tip in the overall fee is small most of the time.

Third, if Ethereum is congested, let it be congested as much as possible. The more congested it is, the higher the miners' income will be. This is a wrong idea. If it is congested, all traffic and funds will be moved to other side chains. The value of Ethereum will be unstable and the price will plummet. How can mining make money? Before 2018, the block reward was 5, then 3, and now 2. The profit of Ethereum miners has not decreased. As the network value and token price of Ethereum increase, the miners' income will also increase. Choose to mine 3.9 ETHs priced at $1,000 or 2.5 ETHs priced at $5,000. This is an economic account. Who can pat his chest and say that the miners' income will definitely decrease?

Summarize

EIP1559 can alleviate the congestion problem of the Ethereum network, which is beneficial to the development of the entire ecosystem, and the income of miners will not necessarily decrease. Dear readers, please do not be led by public opinion.