Ethereum EIP-1559 proposal dispute: Opponents have more than 60% computing power, which is not the best solution

Text | Peter Edited by | Tong Produced by | PANews

The rise of liquidity mining last year has promoted the vigorous development of the DeFi ecosystem on the Ethereum network. While the financial demand for transactions, lending, etc. is growing, it has also caused a sharp surge in Ethereum gas fees, causing the network to become more congested.

The EIP-1559 solution proposed by Vitalik Buterin, while solving the problems of high gas fees and network congestion for Ethereum users, infringes on the interests of miners, and mining pools have publicly expressed opposition. Can the controversy over EIP-1559 in the community be effectively resolved, and can Ethereum smoothly transition to version 2.0?

Mining pools stand on their own side and compete with each other

On February 26, three mining pools released news in succession, stating their stance on Ethereum’s EIP-1559 proposal. The proposal to improve Ethereum’s transaction fee mechanism proposed two years ago has already attracted the attention of many Ethereum enthusiasts, and this time the discussion about it has once again become very popular.

f2pool, the third-ranked mining pool in Ethereum’s computing power, published an article titled “Standing on the Right Side of History: EIP-1559” and officially expressed its support for the EIP-1559 proposal. It is currently the only mining pool that publicly supports the proposal.

In the article, F2Pool emphasized that Ethereum has been in a high-speed growth mode in the past two years. Many ecosystem builders have created a large number of ecological applications such as DeFi, DAO, and NFT on Ethereum. It can also be observed from the on-chain data that the number of transactions on the Ethereum chain has exceeded the peak level in 2017. However, the sharp increase in demand has prompted the Gas fee on Ethereum to continue to rise, the network is increasingly congested, and sometimes users even spend high Gas fees but still fail to trade, resulting in a poor user experience.

EIP-1559 can solve this problem well, and currently key developers (such as Vitalik), core contributors and users in the community have chosen to support EIP-1559. From a historical perspective, it is important to stand on their side. Ethereum Classic (ETC) is still a growing ecosystem after the fork, but its appeal in terms of use and application is far behind Ethereum.

Subsequently, Spark Pool and Bee Pool also expressed their positions one after another, but they chose to oppose the EIP-1559 proposal. Spark Pool said that this was the tyranny of the majority under the pretext of user experience, and that EIP-1559's choice to destroy Basefee was a redistribution of wealth from miners to coin holders, which was a kind of "robbery". Bee Pool believed that easing transaction congestion and high handling fees could be solved by dynamically expanding GasLimit, and that price was a very complex factor and would not be boosted by a small amount of destruction.

Ethereum miners have always been the strongest opponents of EIP-1559, and most mining pools have repeatedly issued articles opposing EIP-1559. Because this touches their direct interests, they are the most affected group.

While Flexpool has publicly stated its opposition to the EIP-1559 proposal, it has also established the STOPEIP1559 website to monitor the positions of major mining pools on the EIP-1559 proposal. The website shows that 12 Ethereum mining pools have publicly opposed EIP-1559, and only F2pool publicly supports the proposal. The remaining 7 pools support it by default and have not made any public statements.

The reason why they did not make a public statement represents tacit support is that the remaining 7 mining pools, without stating their position and taking any measures, will peacefully accept the node updates sponsored by Ethereum developers, and the updates include the EIP-1559 proposal and the higher version of ETH 2.0 updates. It is not difficult to find that most of the mining pools that currently support the project also operate Bitcoin mining pools. In contrast, the opponents are mainly engaged in Ethereum mining pools, but the computing power of the opponents currently occupies the upper position. According to statistics from Twitter users, the pools that oppose EIP-1559 account for about 63% of the computing power of the Ethereum network.

Network congestion has been around for a long time. Why is EIP-1559 controversial?

The congestion problem of the Ethereum network has been around for a long time. As early as 2017, the popularity of CryptoKitties caused great congestion on the Ethereum network and the gas fee price soared. The popularity of DeFi this time has caused a sharp increase in demand for transactions and lending on Ethereum, which has also caused a sharp increase in gas fees, setting new highs.

According to Gas Now data, the Gas Fee reached a record high of 1,220 Gwei this week. The surge in Gas Fees has greatly increased the income of Ethereum miners, which has given miners the motivation to maintain the status quo and oppose EIP-1559. On February 23, data from The Block showed that Ethereum miners' income exceeded $1 billion in February this year, setting a new record, of which transaction fees accounted for $541 million, accounting for more than half of miners' income.

High gas fees and congested networks have restricted the development of other projects on the Ethereum ecosystem. Currently, some Ethereum users have quietly turned to other public chains with more friendly fees, which has also given exchanges many opportunities. This year, exchanges such as Binance and Huobi have built DeFi ecosystems on their own public chains, thereby attracting many projects and users.

Therefore, if the Ethereum ecosystem wants to develop in the long run, it is time to make improvements, which is the significance of the EIP-1559 proposal.

EIP-1559 is a proposal for improving the Ethereum transaction fee mechanism jointly proposed by Vitalik Buterin and Eric Conner, the founder of Ethhub_io, in March 2019. As early as 2018, Vitalik Buterin proposed a prototype of the proposal. In the past two years, EIP-1559 has been one of the most watched proposals in the community, but it has also sparked huge controversy. 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 change the way to pay gas fees to miners. Currently, miners package transactions mainly by selecting transactions with higher bid gas fees in Mempool (transaction memory pool).

In the EIP-1559 proposal, the gas fee will be divided into two parts: the base fee and the miner tip. The base fee is the minimum price that users must pay in order to package their transactions into the block, but the base fee does not belong to the miners but will be destroyed.

If the Gas fee contained in the block exceeds the limit of 12.5M, the block will be adjusted according to the actual usage demand and the limit will be increased. The final upper limit of the Gas fee is 25M. Tips are additional rewards given to miners. When the Gas fee reaches the final upper limit of 25M, miners will sort and package according to the tip.

The EIP-1559 proposal adjusts the gas fee rate according to actual usage demand to ensure that the block utilization rate remains half-full, and dynamically adjusts the upper limit of the gas fee to better cope with short-term demand peaks and avoid network congestion caused by high demand, thereby improving user experience.

On the other hand, the deflation mechanism formed by the destruction of the base fee (Basefee) increases the value of each ETH, but it reduces the block rewards of Ethereum miners. The increase in this part of the deflationary income often cannot offset the reward of the miners' handling fee, so the final income of the miners is reduced, which is also the fundamental reason why miners collectively oppose the EIP-1559 proposal.

EIP-1559 is an inevitable trend, but is it really the best solution?

EIP-1559 is mainly led by Tim Beiko, who is a staunch supporter of EIP-1559. According to his judgment, from a technical point of view, there are still some problems to be solved before the launch of EIP-1559. However, the launch of EIP-1559 is an inevitable trend, and it may be launched as early as the "London" hard fork in July this year.

Vitalik Buterin 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. Miners seem to be the sacrificed party. Miners' main income currently comes from users on Ethereum. If users are lost, income is lost. However, miners are replaceable for users. There will be new miners on the Ethereum network that agrees to the EIP-1559 proposal.

Pan Zhibiao, the founder of Biyin, said that he should not make a fuss about it. EIP-1559 does not need miners to vote. The proposal caused the deflation of the currency price and sacrificed the interests of some miners, but from the overall perspective, it maintained the development of the community in the long run. At the same time, he also believed that "EIP-1559 is a useless solution and does not solve the problem of network congestion. The roadmap has long been clear that it will eventually turn to PoS and ETH2.

There is another reason why EIP-1559 must be launched, which is market expectations. F2Pool believes that the current price of ETH is likely to have included the value generated by launching EIP-1559. Most community members, including investors, are optimistic about the launch of EIP-1559 and hope that the proposal can work. This expectation is very likely to have been reflected in the price of ETH. If the proposal is not passed, it may be detrimental to the short-term price of ETH. The decline in ETH prices may trigger a series of events, and ultimately miners will also be affected because their income is determined by the price of ETH.

However, there is another view in the industry regarding the EIP-1559 proposal. Tim Roughgarden, a professor of computer science at Columbia University, has conducted an in-depth analysis of EIP-1559. He said that without EIP-1559 or other transaction fee mechanisms, the average transaction fee of Ethereum can still be reduced. The continued high transaction fees are still a scalability problem, not a mechanism design problem. During a period when demand remains relatively stable, no matter which mechanism is adopted, it cannot be expected that the actual transaction fee will be much lower than the market settlement price. If the market settlement price is already very high, the only way to reduce the price is to increase supply or reduce demand.

In this regard, Vitalik holds the same opinion, indicating that EIP-1559 is only a temporary transitional solution, which may alleviate the high gas fee problem in the short term, but the real solution lies in improving the scalability of Ethereum, which is the problem that ETH2.0 is committed to solving.

As July is getting closer, the reason why EIP-1559 is considered to be launched in the "London" hard fork is that the "difficulty bomb" may occur at that time, which is also an important consideration.

On the Ethereum network, the difficulty of mining is not only affected by computing power, but also by the "difficulty bomb" mechanism. As the block height increases, the difficulty of mining will become more and more obvious, and even increase exponentially in the later stage until no blocks can be mined, and the Ethereum network will come to a standstill. The setting of the difficulty bomb will help Ethereum transition from PoW to PoS more smoothly.

Ethereum's transition from PoW to PoS is also an inevitable process. The cryptocurrency world can hardly support the computing power level equivalent to two Bitcoin networks. In addition, Ethereum also has to run more complex smart contracts, which has higher requirements for TPS.

By July, if the difficulty bomb explodes, Ethereum smoothly transitions to PoS, and ETH2.0 is launched, then EIP-1559 will have completed its mission. After that, the scalability issues in the Ethereum network will be gradually resolved, especially the gas fee issue.