Ethereum miners' income hits record high in January; EIP-1559 is good for hoarding coins, new miners need to be cautious

Wu said the author | miaohash

Editor of this issue | Wu Talks about Blockchain

Data shows that due to the sharp rise in the price of the currency, the income of Ethereum miners (in fiat currency) reached a record high in January. According to Beatlenews statistics, the total income reached 828 million US dollars, breaking the record high, and the fee income accounted for more than 30%.

In addition to the DeFi factor, the reason why Ethereum has been able to rise sharply recently is the deflationary expectations brought about by the proposal EIP-1559, which will allow the block to be temporarily expanded and reduce the ETH supply by burning the base fee. However, what ETH holders never expected is that such a trading mechanism that is more likely to push up the token price will cause huge controversy among Ethereum miners.

Recently, Ethereum mining pool Flexpool published a public statement, claiming that it firmly opposes EIP-1559, believing that the proposal will reduce miners' income. Ethereum community user "kladkogex" also believes that the optimization of the auction fee mechanism in EIP-1559 is a huge improvement, but on the other hand, destroying the base fee in the transaction fee is not fair to miners because it means a reduction in revenue sharing. Although "deflation" may push up token prices, it will only accelerate the "Matthew effect" of the network, and whales holding coins will become richer, while miners will become victims.

The post by "kladkogex" was forwarded by Spark Mining Pool and Bitfly, the parent company of Ethermine. Wang Chun, the founder of F2Pool, expressed his personal support for EIP-1559, refuting the neutral attitude expressed by the financial director of F2Pool.

EIP-1559 sparks community debate

The view in the community that agrees with EIP-1559 is that miners' income depends more on the price of Ethereum than on the amount of mining shares. The bull market may bring about this result: the increase brought about by ETH value capture will far exceed the mining income of Ethereum miners when EIP-1559 is not implemented, which can make up for the reduction in the proportion of income caused by the base fee share.

In addition, some community members use the supply curve/consumer surplus/producer surplus theory to analyze the role of EIP-1559, and believe that the base fee is a kind of "tax", and thus draw the negative conclusion that the proposal will affect the income of miners. Some miners estimate that when on-chain transactions are hot, the reduction in the proportion of Gas sharing will cause miners' income to decrease by more than 30%, and in normal times, miners' income will also decrease by 10%-20%.

For miners who are used to pricing in currency, their income may be damaged in the long run. However, if it is priced in fiat currency, then EIP-1559 is still a medium-term benefit for miners. The key is: the hot on-chain transactions caused by the DeFi craze → increased transaction fees → increased miners' ETH income → increased ETH prices are not a simple linear logic chain. This model cannot estimate the changes in a dynamic system. Just like the computing power growth rate in a bull market will be significantly lower than the currency price growth rate, there is a time window for changes in the usage rate of the Ethereum network and the rise and fall of ETH prices, and they cannot be directly equated.

The foundation of the entire Ethereum network must be to users, not to miners. The pricing mechanism of EIP-1559 can improve user experience and enhance network value, so as to attract more projects/user assets to settle in this value network and form an endogenous positive cycle. Only when users realize value can the Ethereum ecosystem be sustainable. It is short-sighted to only focus on the current reduction in miners' income.

Lowers the profit expectations of new miners, but benefits old miners who hoard coins

After the implementation of EIP-1559, if the network is popular but the price of the currency is flat or falling, miners may have to lower their short-term potential yield expectations. In the ETH bull market, since EIP-1559 is friendly to coin holders, it will also lower the expectations of new miners, but for those old miners who are used to saving coins, this problem does not exist, which may be the reason why Wang Chun expressed his support. From this perspective, whether miners hoard coins and at what point they sell coins have a much greater impact on mining income than EIP-1559.

To ease the inflation problem, the “sacrifice” of PoW miners is inevitable

According to the official documentation of ETH 2.0, before the PoW chain and the PoS chain are completely merged, they will inevitably remain active at the same time for a period of time, which means that the ETH rewards on the network will be paid to both Ethereum 2.0 validators and PoW miners. Therefore, the total inflation rate of these two chains may soar in the short term, but will eventually gradually tend to 0-1%.

In the case that the PoS chain is not yet ready, the implementation of EIP-1559 can alleviate future inflation anxiety to a certain extent and force existing miners to switch to the coin hoarding mentality under the PoS mechanism in advance. Therefore, from the perspective of Ethereum's long-term roadmap, the "sacrifice" of current PoW miners is inevitable.

However, judging from the current situation in the community, the opposition will not affect the launch of EIP-1559. Tim Beiko, chairman of AllCoreDevs (Ethereum core developer conference), revealed that EIP-1559 is close to completion and will likely be launched this summer, but later than the Berlin hard fork. He also mentioned that the disruptive remarks of some miners have not slowed down the momentum of EIP-1559. If EIP-1559 meets the needs of most users, other miners will still be motivated to mine.

However, for the current surging sales and purchases of Ethereum mining machines, it may be necessary to re-evaluate the economic model, purchase decisions and prices. (Image from Reuters)