Ethereum’s ‘EIP 1559’ Fee Market Overhaul Greenlit for July

07/03/2021 by No Comments

One of the most significant and contentious alterations to the Ethereum blockchain in recent memory is now scheduled for inclusion into its codebase.

Ethereum Improvement Proposal (EIP) 1559 will be packaged with the London hard fork this coming July regardless of the mining industry’s discontent with the proposal, according to the All Core Developers call Friday. At least five other EIPs are likely to join EIP 1559 in London.

EIP 1559 flips a typical blockchain transaction on its head in order to fix numerous issues with Ethereum’s user experience. Traditionally, a user sends a gas fee to a miner for a transaction to be included in a block. That gas fee will now be sent to the network itself as a sort of “burn” called basefee with only an optional tip paid to miners. The burnt fee is algorithmically set as well, ostensibly making it easier for users to pay a fair fee.

The proposal has garnered some of the largest support to date from Ethereum application creators and users alike, given the current difficulty of selecting a correct transaction fee. Miners and mining pools, on the other hand, have been gathering in opposition against the proposal as it progressed toward mainnet.

Mining gold rush

Indeed, Ethereum mining has been a particularly lucrative business of late. Total mining revenue surpassed a record $1.3 billion in February, with some 50% coming from fees alone, according to Coin Metrics. An increase in both the price of ether and transaction fees has introduced a wave of new hash power to the network, which is more than double that of a year ago.

Minority mining pool Flexpool launched a marketing campaign against the EIP. Several minority pools joined, followed by majority pools Ethermine and SparkPool. Over 60% of the Ethereum network’s hash power is now against the proposal. F2Pool is the largest pool in favor of the EIP, with some 10% hash power.

On the call, Ethereum developers decided to pair EIP 1559 with a delay to the difficulty bomb. Also called the “Ice Age,” the bomb incrementally increases the difficulty of mining on the Ethereum network. Geth team lead Péter Szilágyi said that pairing EIP 1559 with the delay helped ensure no one would fork Ethereum at that time without having to undergo some technical hurdles.

MEV to the rescue

Mining pools have only a few options to stop EIP 1559 now that it’s included, and most of these would be considered actively hostile against the network. The largest danger would be a 51% attack against Ethereum, which would censor transactions using the EIPs framework. It remains unlikely, however, given various financial incentives not to attack the network.

For example, successfully using a 51% attack against Ethereum would likely decrease the value of ether in the short term. (Or maybe not, as three 51% attacks on Ethereum Classic have shown).

Moreover, a new revenue replacement is quickly becoming available for mining networks. Called miner extracted value (MEV), miners can take advantage of their place as arbiters in how blocks are packaged to “front-run” profitable trades. MEV is currently popular among decentralized finance (DeFi) traders who bid up gas prices to secure their place in the block. Many Ethereum mining pools are currently implementing MEV software to gather this untapped source of revenue.

A large majority of Ethereum miners are against the proposal. But that hasn’t stopped developers from scheduling the upgrade for July.