Ethereum’s London Upgrade Coming: What Will the Much-anticipated EIP-1559 Bring to the Industry?
In the recent All Core Devs call, the developers set the time for Ethereum’s London upgrade in mid-July. On June 18, the Ethereum Foundation announced in its official blog that the upgrade would be rescheduled after the upgrade of all testnets. The first one is the Ropsten testnet, which was upgraded on June 24.
According to the specification document for the London upgrade, there are five EIPs (Ethereum Improvement Proposals), including the extensively discussed EIP-1559, which is also the most important proposal in the upgrade.
Ever since it was proposed by Ethereum developers two years ago, EIP-1559 has stayed in the center of the debate, and, after being included in the London upgrade, it even stirred huge disputes among miners: some believe EIP-1559 will benefit the future development of Ethereum, while others criticize it for jeopardizing their existing interest.
EIP-1559 will fundamentally change the current Ethereum’s Gas mechanism. Before the London upgrade, the gas price of Ethereum was a product of the gas limit and the gas price. Miners would give priority to transactions with higher gas fees. In other words, the higher the gas price you set, the more likely it is to be packaged by miners. But this simple method could cause excessive gas fees in congestion. What’s worse, users found it hard to predict the current transaction status, so they had no choice but to blindly guess the price. As a result, some of them could not trade for a long time because the gas price they set was too low or might pay too much due to unreasonable prediction of the current network condition.
EIP-1559 will replace the existing Ethereum’s Gas mechanism with a combination of a “Base Fee” and a “Tip”. When transferring funds, users need to set a “Fee Cap”, which includes the sum of the base fee and the tip.
The base fee is determined by the system and will be dynamically adjusted according to the network congestion. When the block is not congested, the user only needs to pay the base fee and the minimum tip, both of which are predictable before the transaction.
In the case of congestion, when the block gas exceeds 10 million gwei, the base fee would not stop rising until the next block gas is below that level. Therefore, if the block is congested for a long time, the base fee will grow exponentially, even reaching hundreds of dollars in half an hour. At this time, some users without urgent needs may suspend trading temporarily, leaving the block space for others. When the block gas is approaching the upper limit of 20 million gwei, miners will first package transactions with higher tips, just like in the first-price auction.
Different from the existing mechanism where all the gas paid by users goes to miners, EIP-1559 will have the base fee burned, leaving miners only the tip and the fixed block rewards. That does mean a loss in the mining income to miners.
But EIP-1559 offers users a big boon by making the gas price more predictable. In the past when trading or interacting with contracts in Ethereum, users had to wait if the gas was too low due to a wrong estimation. The gas would even double if users wanted to cancel or accelerate the transaction.
Moreover, users may rest assured that they won’t have the gas wasted due to excessive bids. After setting the fee cap, the excess gas will be refunded. For example, you can set the fee cap to 100, which is the most you’re willing to pay for a transaction. Assume the block is not congested for the time being, with the base fee at 10 and the tip at 1, or the total cost at 11. Then the remaining 89 will not be consumed but refunded to you. Contrast that to the previous mechanism where all the gas fees would be consumed. Obviously, EIP-1559 offers users a better experience.
For the Ethereum ecosystem, EIP-1559 enables the price of the block space to be automatically adjusted according to the network conditions. When the network congestion pushed the average price upward, less urgent transactions will be sent at a later time. Such a flexible price adjustment can alleviate the congestion of Ethereum a bit, preventing a large number of users from trading at the same time. In addition, burning the base fee, the first burning introduced to Ethereum, relieves the inflation pressure arising from Ethereum’s unlimited issuance and prevents miners from maliciously increasing the gas price.
It is clear that EIP-1559 for the London upgrade represents an important transition from Ethereum to POS. Friendly to both users and developers, EIP-1559 can facilitate the development of Ethereum-based applications and improve the poor user experience on Ethereum. Although it encroaches on Ethereum miners’ interest to some extent, miners will still have more sources of income apart from mining, like Miner Extractable Value (MEV) brought by Ethereum-based applications.
At present, Ethereum is the largest public chain ecosystem in terms of consensus and total value, only second to Bitcoin, and most users and miners are optimistic about its profits in the long run. What is more important for miners is to connect to a mining pool with stable hashrates. Just look at the mining crackdown starting from June 19 in China, which has slashed hashrates of many mining pools by 15% or even more than 20%. Despite that, ViaBTC Pool, among the top mining pools, managed to control the fluctuations within a small range. Stable hashrates secure stable block generation and income. Faced with a gas decline following the London upgrade, miners need to seriously consider how to stabilize their yields now.