Ethereum's founder Vialik Buterin first proposed the Ethereum Improvement Protocol in 2019. This was done in response to the existential discrepancies in the financial policy of the Ethereum network.
Ethereum.org defines EIP 1559 as a transactional costing mechanism for ETH 1.0 network. It comprises a predetermined base fee that is completely burned and dynamically adjustable block sizes to deal with transient congestion.
In the upcoming article, we are going to discuss the technical benefits brought in by EIP 1559. Additionally, there are a few misconceptions attached to the introduction of EIP 1559.
Let's have a look at both of these issues surrounding EIP 1559 in a row.
Technical benefits of EIP 1559
Before EIP 1559, transactions on the Ethereum network happened through the first price-based auction system. There, users had to pay the gas fee without knowing the exact estimates to be paid beforehand. A number of times, seeking to have smooth transactions users end up bidding exorbitant amounts of gas prices even if the congestion is low.
EIP 1559 transit the methodology by enabling a transparent pricing mechanism with the introduction of a predetermined base fee. Alongside, users may choose to pay a miner's fee for prioritizing their transactions.
This algorithmically suggested base fee prevents miners from overpaying for their transaction and thus enabling users to have a better transactional experience.
This creates an optimized feedback system, controlling Ethereum circulation and creating a higher value for the existing ones.
A slack mechanism allows some blocks to be larger in size in comparison to others. This depends on the demand for the block space. This creates a space for a longer-term average block size limit but allows for variation across individual blocks.
Now that we have understood the technical benefits offered by the Ethereum Improvement proposal 1559, let's move on to the misconceptions surrounding the same.
Myths surrounding EIP 1559
No, in the short term it may reduce the gas price but theoretically speaking as the demand increases, it will lead to increasing transaction numbers tramping up in the same block leading to increased gas price.
For the long term, the users have to rely on the Proof of Stake consensus mechanism to cause a reliable decrease in the gas price.
EIP 1559 attempts to make changes in the financial model for transactions on Ethereum, majorly highlighting democratizing control over transaction price.
Firstly, MEV or Miner's extractable value is the income miners earn for their efforts of arranging transactions in block space.
EIP 1559 does not offer any outlet to resolve the issue of the miner's extractable value. It does not affect the miner's capability to arrange transactions and extract MEV through other avenues.
There have been studies showing that miners' income might decrease by (25-30)% due to base fee burning. Although the proposal takes away base fees from the miners, it includes avenues for improvement in miners' income through different sources such as block subsidies.
Base fee burning is said to be the highlighted feature of EIP 1559. Though, there have been allegations that the burning of ether might cross the amount of ether produced. However, there is no way to predict the amount of ether burned or the net amount of ether produced in the future. Base fee and hence ether burning remodeled itself dynamically with Ethereum network activity and demand for block space
With a lot to offer on its plate, EIP 1559 comes with its share of misconceptions. Still, since the inception of Ethereum, EIP 1559 has been the most-awaited and revolutionary change brought into the domain of the Ethereum network.
EIP 1559 volunteers to introduce an enhanced user experience alongside providing stability in the transaction fee for the Ethereum network. However, misconceptions can lead to a setback in the new advancement. It is imperative to stay updated with correct information to avoid any discrepancies in one's decision-making regarding new interventions in the blockchain world.
Ethereum.org defines EIP 1559 as a transactional costing mechanism for ETH 1.0 network. It comprises a predetermined base fee that is completely burned and dynamically adjustable block sizes to deal with transient congestion.
In the upcoming article, we are going to discuss the technical benefits brought in by EIP 1559. Additionally, there are a few misconceptions attached to the introduction of EIP 1559.
Let's have a look at both of these issues surrounding EIP 1559 in a row.
Technical benefits of EIP 1559
- Reduces transaction fee vulnerability and thereby enhancing user experience
Before EIP 1559, transactions on the Ethereum network happened through the first price-based auction system. There, users had to pay the gas fee without knowing the exact estimates to be paid beforehand. A number of times, seeking to have smooth transactions users end up bidding exorbitant amounts of gas prices even if the congestion is low.
EIP 1559 transit the methodology by enabling a transparent pricing mechanism with the introduction of a predetermined base fee. Alongside, users may choose to pay a miner's fee for prioritizing their transactions.
This algorithmically suggested base fee prevents miners from overpaying for their transaction and thus enabling users to have a better transactional experience.
- Burning of the base price entirely controls the inflationary tendencies of Ethereum.
This creates an optimized feedback system, controlling Ethereum circulation and creating a higher value for the existing ones.
- Fluctuating Ethereum Block Size
A slack mechanism allows some blocks to be larger in size in comparison to others. This depends on the demand for the block space. This creates a space for a longer-term average block size limit but allows for variation across individual blocks.
Now that we have understood the technical benefits offered by the Ethereum Improvement proposal 1559, let's move on to the misconceptions surrounding the same.
Myths surrounding EIP 1559
- EIP 1559, will considerably reduce the gas price
No, in the short term it may reduce the gas price but theoretically speaking as the demand increases, it will lead to increasing transaction numbers tramping up in the same block leading to increased gas price.
For the long term, the users have to rely on the Proof of Stake consensus mechanism to cause a reliable decrease in the gas price.
EIP 1559 attempts to make changes in the financial model for transactions on Ethereum, majorly highlighting democratizing control over transaction price.
- EIP 1559 has the capacity to resolve the issue surrounding MEV or Miner's extractable Token and decrease miner's income
Firstly, MEV or Miner's extractable value is the income miners earn for their efforts of arranging transactions in block space.
EIP 1559 does not offer any outlet to resolve the issue of the miner's extractable value. It does not affect the miner's capability to arrange transactions and extract MEV through other avenues.
There have been studies showing that miners' income might decrease by (25-30)% due to base fee burning. Although the proposal takes away base fees from the miners, it includes avenues for improvement in miners' income through different sources such as block subsidies.
- While every transaction burns some ether, does not imply enough ether will be burned to offset the current issuance rate
Base fee burning is said to be the highlighted feature of EIP 1559. Though, there have been allegations that the burning of ether might cross the amount of ether produced. However, there is no way to predict the amount of ether burned or the net amount of ether produced in the future. Base fee and hence ether burning remodeled itself dynamically with Ethereum network activity and demand for block space
With a lot to offer on its plate, EIP 1559 comes with its share of misconceptions. Still, since the inception of Ethereum, EIP 1559 has been the most-awaited and revolutionary change brought into the domain of the Ethereum network.
EIP 1559 volunteers to introduce an enhanced user experience alongside providing stability in the transaction fee for the Ethereum network. However, misconceptions can lead to a setback in the new advancement. It is imperative to stay updated with correct information to avoid any discrepancies in one's decision-making regarding new interventions in the blockchain world.
