The vast majority of Ethereum miners are unlikely to protest against EIP-1559, a proposed change to Ethereum’s “crazy” fee market that would potentially reduce a fair share of miners’ revenues, according to popular crypto analyst Hasu and Georgios Konstantopoulos, Research Partner at Paradigm, a cryptoasset investment firm.Source: iStock / undefined undefined
EIP-1559 is an Ethereum improvement proposal from ETH co-founder Vitalik Buterin, which was first proposed in April 2019. Its aim is to change the rules of how Ethereum users offer block space to get their transactions confirmed. It contains a new set of rules that is relatively simple but would mean significant changes for users, miners, wallet providers, as well as the general security of the Ethereum blockchain.
Four major improvements proposed by EIP-1559, as described in the analysis of EIP-1559, are:
- All transactions pay the same rate of fees. One of the biggest problems with first price auctions currently used by Bitcoin and Ethereum is estimating the fees. EIP-1559 tries to improve this by paying all transactions the same price as much as possible, rather than placing individual bids, which would hopefully result in lower fees and more accurate fee estimates.
- Loose block-sized mechanism. The demand for block space often varies, so miners validate both half-full and severely congested blocks. The EIP-1559 slack mechanism would allow some blocks to be larger while other blocks are smaller. As such, the longer term average block size limit would still be enforced, although there would be short term fluctuations between individual blocks.
- Security improvements. EIP-1559 seeks to make Ethereum blockchain security less dependent on users’ transaction fees by burning them up and instead incentivizing miners with a more reliable fixed-term block subsidy.
- Prevention of economic abstraction. EIP-1559 will also force transactions to burn a certain amount of ETH so that other tokens don’t jeopardize the reserve status and monetary reward of the native token.
Reportedly, some miners are dissatisfied with the proposed changes and have started rallying against the proposal under the hashtag # StopEIP1559.
One of the leading mining pools opposed to the proposal, Flexpool, has even set up a website to track Ethereum mining pools that oppose the proposal. According to some of the pool’s latest tweets, their faction is against burning transaction fees instead of “giving them to honest miners who have invested their savings in Ethereum security.”
Even so, the article co-authored by Hasu and Konstantopoulos and published on the Deribit Insights website argues that most miners will likely activate the proposal because they are structurally long ETH and the entire Ethereum economy, and they will likely carry on with the same revenue Receive block subsidies. In addition, the report’s authors emphasized that miners provide services to Ethereum users in a transactional relationship, so without a sufficient number of users, there would not be enough revenue for the miners.
“Users have no moral (or other) obligation to pay miners more than is necessary to keep Ethereum safe, any more than miners have a moral (or other) obligation to keep mining going when it is not profitable for them is.”
With these dynamics in mind, the report specifies five scenarios for how EIP-1559 activation might develop.
Miners maintain the old chain without EIP-1559. This scenario is unlikely due to the Ethereum difficulty bomb. All EIP-1559 opponents would have to go through an additional hard fork in order to avoid their version of Ethereum coming to a standstill.
Scenario # 2
Miners create a new altcoin. Similar to the split between Ethereum and Ethereum Classic (ETC), miners could branch Ethereum and create an entirely new chain. However, this is also unlikely as a forked version of Ethereum today would also replicate thousands of different tokens, smart contracts, applications and much more. Even if all projects were copied in a fork, they would essentially be just skeletons. Consider a stablecoin project, or Wrapped Bitcoin (WBTC) – they represent claims to an asset in the real world, but duplicating the claim would not duplicate the asset.
“The emergence of tokenized assets and defi has made the state of Ethereum immutable,” the authors say.
Scenario # 3
Miners create an altcoin with a fresh state. Creating a new altcoin with a fresh state is more feasible than the second scenario, but the new chain would lose the existing ETH supply distribution, as is the case with other stateless forks of Ethereum such as Tron (TRX) or Binance Smart Chain (BNB.) Case). Alternatively, if the new chain copies the ETH distribution, all new coins will be in the hands of potential adversaries who could use them to suppress the pricing of the new asset.
Scenario # 4
Miners could join the new chain but block EIP-1559. In this scenario, miners would join users of the new Ethereum blockchain, but would actively intervene in the EIP-1559 mechanism to prevent it from burning ETH. However, competition between different miners makes this strategy impossible without the implementation of an additional miner-activated soft fork, which would represent an unprecedented and self-destructive economic attack on the Ethereum network and its users.
Scenario # 5
Miners join the new chain and support EIP-1559. According to the researchers, this is the most likely scenario. Even if the miners made less on the new chain, they could still make a lot more than creating some type of altcoin.
In addition to these scenarios, the report also identifies three possible concessions that could please the miners even more:
- Increase the block subsidy for the new chain to increase the compensation of the miners.
- EIP-969 activation which would remove all ASIC miners from the Ethereum network.
- Instead of burning up the fees, it could be distributed to the miners in the next indefinite number of blocks.
Still, the report concluded that “it is already in the best interests of miners to work with users to upgrade,” and despite protests from some, the transition is likely to succeed.
The upcoming switch to EIP-1559 will be discussed further on Friday, February 26, 2021 at 14:00 UTC at the EIP-1559 Roundtable.
At the time of writing (17:12 UTC), ETH is trading at $ 1,562 and is down nearly 10% in a day and 12% in a week, reducing its monthly gains to less than 27%. The price rose almost 500% within a year.
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