The EIP-1559 proposal continues to be controversial. How to solve the Gas dilemma?

Author: Rachel

The congestion problem of the Ethereum network has been around for a long time. The DeFi craze has once again caused the gas price to soar. In early January, the Ethereum gas price even exceeded 600 Gwei. The Ethereum EIP-1559 proposal was quickly put on the agenda. At present, the code has been basically completed, but the controversy is rampant. Recently, some Ethereum mining pools have even jointly prevented the launch of EIP-1559. The market sentiment is obviously divided into two completely different factions.

“This improvement is very beneficial to the Ethereum network and will solve the problem of expensive gas prices. It is the last piece of the puzzle in Ethereum’s monetary policy and a key link for ETH to obtain a monetary premium.”

"It's just futile and useless. It's just empty talk and immature advice."

Ethereum core developer Danny Ryan originally expected to launch EIP-1559 this year, but now facing the joint opposition of multiple mining pools, the future of the EIP-1559 proposal is in a dilemma.

Network congestion and gas surge, community choice

Why did the EIP-1559 proposal appear? In fact, EIP-1559 is one of the most anticipated Ethereum improvement proposals. If successfully launched, it will change the Ethereum fee market, solve many problems of Ethereum transaction fees, make the fee market more predictable, and reduce congestion.

The continued craze of ICO in 2018 and the rise of CryptoKitties in the later period led to a sharp increase in user transaction demand in the short term. The Ethereum network felt extremely congested for the first time, and projects such as CryptoKitties that require extremely high gas fees caused a surge in Ethereum gas in a short period of time. Just like the DeFi craze this year, high gas fees have become one of the problems that hinder its large-scale application.

Then in July 2018, Vitalik Buterin first proposed the prototype of EIP-1559. It was not until March 2019 that Vitalik Buterin and Ethhub_io founder Eric Conner jointly proposed the Ethereum transaction fee mechanism improvement proposal EIP-1559.

The EIP-1559 proposal proposes to divide the transaction fees paid by users into two parts: base fee (BASEFEE) and miner tip (TIP). The base fee will not belong to anyone and will be destroyed, directly reducing the supply of ETH in the entire network. The setting of this deflation mechanism initially received great affirmation from the Ethereum community for the EIP-1559 proposal, and the EIP-1559 community crowdfunding fund was quickly established to obtain grant funds. However, the direct destruction mechanism also laid the groundwork for the strong resistance of miners.

In the Ethereum network, there is an upper limit on how many transaction instructions each block can process, namely the Block Gas Limit. The base fee rate in EIP-1559 is adjusted according to actual usage demand to ensure that the block utilization rate remains half full. EIP-1559 can increase the block Gas limit when the demand for network transactions is high, and reduce the block Gas limit when the demand is low. The average block Gas limit over a period of time remains unchanged, but it can dynamically cope with short-term demand peaks to avoid network congestion caused by this.

The core of EIP-1559 is to alleviate network congestion and ensure that all user transactions are included in the Ethereum blockchain, but there is no need to pay excessively high gas fees. You only need to pay the highest fee you are willing to pay, thereby improving the user experience.

Since the EIP-1559 proposal was put forward in March 2019, it has been nearly two years now, and EIP-1559 has been at the proposal level, and the progress is quite slow. However, considering the development speed of Ethereum 2.0, the progress of the EIP-1559 proposal is not slow. A few days ago, the core developers of Ethereum finally revealed some encouraging progress. EIP-1559 has been basically completed, and now only needs to conduct block size testing. It is expected to be launched this year.

Danny Ryan, an advocate of Ethereum core developers, particularly emphasized that EIP-1559 is very beneficial to the development of the Ethereum network. The charging mechanism of EIP-1559 will be implemented on the sharded data layer of ETH2. This will provide a better user experience for Ethereum data consumers when trying to put data into the Ethereum network, and help Rollup securely input its block data into the beacon chain.

Ethereum developers are working hard to push for updates, and the Ethereum Foundation is also actively promoting the implementation of EIP-1559, uniting most large Ethereum mining pools to support EIP-1559. These large mining pools can implement changes without the consent of miners, but the resistance of miners can no longer be suppressed.

EIP-1559 is coming soon, miners unite to resist

The code is completed and will be released soon. Although most of the community has a positive view on the proposal, EIP-1559 has encountered strong resistance from some miners.

BitFly, the parent company of the Ethermine mining pool, has long been against EIP-1559. BitFly claims that EIP-1559 could put the future of Ethereum at risk and opposes the adoption of EIP-1559 in its current state.

Ethereum mining pool Flexpool also firmly opposes the EIP-1559 proposal. On January 18, Flexpool tweeted that it would set up a website to monitor mining pools that formally opposed the EIP-1559 proposal. According to the website, 10 Ethereum mining pools currently support Flexpool's position against the EIP-1559 proposal.

Source: Flexpool

The main reason for the joint opposition from mining pools and miners is that they believe the proposal is unfair and reduces their available profits. On a deeper level, it may lead to small miners being driven out of the network, and the risk of Ethereum mining will tend to be centralized.

Looking back, after the rise of DeFi, on-chain activities have continued to increase, and one of the biggest winners is the miner. According to BitInfoCharts data, due to on-chain congestion, transaction fees were pushed to an all-time high in 2020, and mining profitability reached the highest level in nearly three years. What about after the implementation of EIP-1559? The amount that users need to pay has not decreased, but miners can no longer receive the full amount as before. The gas fees that should have belonged to the miners were not given to the miners, but were destroyed.

That is why there are strong voices of opposition: the EIP-1559 upgrade does not bring any benefits to miners, but instead becomes a form of exploitation of Ethereum miners. Once EIP-1559 is upgraded, Ethereum miners will become slaves, and the ultimate beneficiaries will be Ethereum developers.

If EIP-1559 will be implemented on ETH2 as Danny Ryan said, will the miners on ETH1 be unaffected? No, according to Ethereum’s plan, ETH1 will eventually merge with ETH2, so the blow to miners will still exist, and it will be a double blow from ETH2 and EIP-1559.

The obstruction of Ethereum miners is indeed a major problem in the implementation of EIP-1559. According to a report collecting feedback from the ETH community, almost all Ethereum miners surveyed believe that EIP-1559 will have a negative impact on them, and if EIP-1559 is passed, they will consider switching to other chains for mining. This will have a huge negative impact on the development of the Ethereum ecosystem.

In response to the current opposition from miners, the 2Miners mining pool stated that it will record the miners’ positions on EIP-1559 and share them with all core developers, and incorporate them into the EIP-1559 decision-making process. If EIP-1559 is finally applied, the community will be informed of the reasons for the rejection.

The Future of Ethereum

It has been nearly two years since EIP-1559 was proposed in March 2019. The code phase has been temporarily completed. Given the slow pace of Ethereum ecosystem updates, it remains to be seen whether EIP-1559 can be truly implemented this year.

EIP-1559's algorithm-based fee model hopes to completely eliminate the current Gas dilemma, improve user transaction experience, attract more users to the Ethereum ecosystem, and accelerate ETH into the deflation era. These are the reasons why EIP-1559 has become the most anticipated proposal. However, as an important part of the Ethereum ecosystem, the negative impact of mining must be considered, and mandatory implementation may be counterproductive.

EIP-1559 is a temporary solution, not a permanent one. In my opinion, this is actually the biggest problem. Tim Roughgarden, a professor of computer science at Columbia University, has conducted an in-depth analysis of EIP-1559: No EIP-1559 or other transaction fee mechanisms will significantly reduce the average transaction fee of Ethereum. The continued high transaction fees are a scalability problem, not a mechanism design problem. During a period when demand remains relatively stable, no matter what mechanism is used, it cannot be expected that the actual transaction fees 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, and these actions are usually not within the scope of mechanism design.

Vitalik also holds the same opinion. EIP-1559 is only a temporary solution. It may alleviate the high gas fee problem in the short term, but the real solution lies in improving the scalability of Ethereum, which is also the problem that ETH2.0 is committed to solving. The scalability problem has become the root cause of various problems in the Ethereum ecosystem, especially the gas fee problem. Then ETH2.0 is the key. Perhaps after the scalability solution of ETH2.0 is launched, it can change the development direction of the EIP-1559 proposal.

Both EIP-1559 and ETH2.0 are expected to be implemented and launched this year, but at present, due to the strong opposition from miners, an important component of the Ethereum ecosystem, it may be questionable whether the new Ethereum ecological era can be truly opened this year.