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    Basil S.

    EIP-1559: Users vs Miners

    Coinjoy london hadrfork ethereum

    Ethereum miners are not exactly fond of EIP-1559. In fact, the very idea of the new transaction pricing model embodied in this soon-to-be-implemented network update proposal makes certain miners disaffected to the point that they are now planning to redirect their hashrate to a 1559-opposed pool Etherchain as a way of protest. This rally, however, is hardly going to change any developers’ minds, as EIP-1559 enjoys the support of the Ethereum community and is currently scheduled for release as a part of the London hard fork in July. 

    So what are the implications of implementing this controversial Ethereum update and why are miners being so vocal against it? Here’s what you should know. 

    The gas price issue

    Since about as far as at least 2017, Ethereum users have been struggling with two issues impeding their experience with the network: overpaying for Ethereum gas and long transaction delays. Both of these problems stem from the modus operandi of Ethereum’s mechanism for pricing transaction fees

    Ethereum’s current fee system works as a first-price auction, meaning that users looking to make a transaction have to submit the gas price they are willing to pay to the miner. In this scenario, miners are presented with an opportunity to always pick the most lucrative bid first, which makes users submit the highest bid they can pay. 

    The worst part about this fee pricing model is that users don’t even know one other’s bids. As a result, more deep-pocketed users in need of a quick transaction are basically forced to grossly overpay to miners, while those who can’t afford to overbid them are compelled to experience huge transaction delays. In the meantime, as users tediously calculate Ethereum gas price, miners placidly roll in their gas money and thrive. 

    This remarkably one-sided nature of Ethereum’s current pricing system became especially evident in recent months: as DeFi gas fees went through the roof in February, the network’s fees hit an average of $20 per transaction, effectively writing many casual investors out of the picture. 

    Ethereum transaction

    At any rate, it has been long apparent that something had to be done with Ethereum’s unjust fee pricing model. Looking for possible ways to address this problem, the network’s developers came up with the concept of EIP-1559.  

    The selling point

    As far as gas management is concerned, Buterin and Co’s network improvement proposal suggests replacing the current auction-based pricing approach with an automated pricing system. To optimize user transaction costs, EIP-1559 introduces a transaction fee mechanism that will be split into two parts: a base fee and a tip.

    Base fee represents an amount of gas that is adjusted by the network’s protocol: this protocol will automatically set a gas fee for each wallet depending on the current congestion of the network. Miners don’t get to receive even a tiny fraction of the base fee — instead, it is always burned in order to reduce ETH inflation. What they do receive, however, is a tip from users. Although these tips allow to speed up the transaction for users who are in a hurry, including them is completely optional.

    Put simply, EIP-1559 transaction pricing model favours reasonable gas fees and the convenience of users over miners’ rewards. Instead of constantly guessing each other’s bids and overpaying for gas time after time, the Ethereum community will finally be provided a user-friendly and predictable fee system. The only downside is, these benefits come at the cost of reducing rewards for miners. 

    The customer is always right

    The dissatisfaction with EIP-1559 among miners is totally understandable after all, they are the ones who are going to be hit in the pocket when the network is updated. And yet, it’s important to understand the relationship between users and miners is merely a client-provider type of relationship where the former always has to satisfy the demand of the later. 

    In a way, the miners’ rallies against switching to the new pricing model is highly reminiscent of strikes against Uber and other cab aggregators that were so common for taxi drivers in the 2010s. EIP-1559 to miners is almost the same thing that aggregator apps were to cabbies: an automated solution that hugely benefits customers while simultaneously setting back the service providers.

    As for now, it seems that just as disadvantaged taxi drivers once had to come to terms with their new and rather unfavourable position on the market, even the most dissent members of Ethereum mining community will be forced to accept Vitalik Buterin’s update proposal — or they will have to leave.

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