What is Ethereum EIP-1559

0x01 preview

After the Ethereum mainnet completed the London hard fork upgrade, the Ethereum EIP-1559 proposal came into effect, which also means that the transition of Pow to Pos is approaching.

note: Ethereum Improvement Protocol 1559,Explained: Ethereum’s London Hard Fork update and its significance. The second-largest cryptocurrency after Bitcoin, Ethereum, underwent a technical upgrade on August 5, 2021. Known as Ethereum Improvement Protocol 1559 or EIP-1559, this major upgrade, has also been dubbed ‘London Hard Fork’

How to reduce the ETH fee has become an urgent problem to be solved. In addition to solutions such as Layer 2, EIP-1559 has also attracted the attention of the industry. So you might ask what exactly is EIP 1559, and what is it for? Let’s dive into

0x02 What is EIP-1559 and what is it for?

First of all, let's see the definition: EIP-1559 is a proposal to make Ethereum transactions more efficient by using a hybrid system of base fees and tips to more evenly incentivize miners in periods of high and low network congestion. In the proposal, a base fee is an algorithmically determined price you pay for a transaction on Ethereum.

EIP 1559 aims to improve the efficiency of the Ethereum fee market, making transaction fees more predictable, handling surge demand more efficiently, and capturing greater Ethereum value.

Currently, Ethereum uses a simple auction system to determine which transactions are included in a block. The more you offer to pay, the more likely a miner will include your transaction in an upcoming block. However, this auction system is arguably inefficient because users must estimate the appropriate fee required to complete their transactions.

Consequently, some users pay more than other users whose transactions have been included in the same block. By switching from the current system to EIP-1559, the industry widely believes that users could save approximately 90% in transaction costs.

EIP-1559 attempts to address this by enforcing the same rate as possible for all transactions. In most cases, users only need to decide whether to pay the fee, not how much to bid, and fees are expected to be lower due to more accurate fee estimates.

Implement a flexible block size limit mechanism to balance the use of block space.

EIP-1559 — with its proposal to utilize flexible block sizes instead of fixed block sizes — is the Ethereum community’s attempt to sidestep a potentially bitter debate. By having a two-tiered system that uses a base fee and tips, EIP-1559 creates dynamic and adjustable block sizes that expand and contract depending on demand.

It is proposed to use permanent block subsidies to incentivize miners and improve network security.

When the block subsidy is exhausted, the blockchain platform that relies only on transaction fees to ensure security may encounter problems.

EIP-1559 attempts to decouple transaction fees and network security, incentivizing miners with more reliable permanent block subsidies. Change the original transaction fee to the basic transaction fee and tip settings, destroy the transaction fee, and give the tip to the miners.

0x03 How Would the EIP-1559 System Work?

  • ETH fees: Base. If EIP-1559 is implemented, the current protocol for Ethereum gas fees would be replaced by a mandatory and algorithmically determined fee called the “base fee.” This base fee would be paid in ether and fluctuate according to network congestion. The proposal aims to keep the network close to a 50% usage rate, meaning each confirmed block is 50% full. If network usage exceeds 50% capacity, the base fee automatically increases. If network usage falls below 50% capacity, the base fee decreases slightly. This predictable pricing mechanism would allow transaction costs to be automatically set by wallet providers, thus removing the responsibility from users. Additionally, base fees would be burned or destroyed after collection, and would not be kept by miners. This is intended to reduce ether’s circulating supply and potentially drive up the value of the coin by increasing scarcity over time.
  • ETH fees: Tips. If you require your transaction to be processed quickly, EIP-1559 would allow you to add a tip on top of the base fee. Unlike base fees, tips go directly to miners, who thus would be incentivized to prioritize transactions that include tips. Because blocks are seldom completely full, under the ideal conditions proposed by EIP-1559, there typically would be roughly 50% available block space that could be allocated to transactions with tips. If there is no spike in demand when a user initiates a transaction, then even a very small tip would be enough to guarantee that a transaction would be included in the next few blocks.

0x04 EIP-1559 in Filecoin

EIP-1559 has been implemented and launched on the Filecoin mainnet, and the daily consumption of FIL due to network transactions is about 100,000 to 150,000.

Fast track for high value transactions. As expected, integrating EIP-1559 provides a straightforward mechanism for Filecoin participants to address this congestion problem without always paying a high price.
Network capacity management. So far, EIP-1559’s base fee mechanism has done a good job of keeping network capacity at 100% of its target.

0x04 Summary

With EIP-1559, in times of increased network congestion, the base fee would rise and users who paid tips would have their transactions processed first. Once all the urgent transactions are cleared, non-urgent transactions would be executed as the base fee decreases — and block space for tips would return to its 50% target. If EIP-1559 is implemented, it is expected that even in times of high congestion, most users would not have to wait more than a few blocks for their transaction to be processed. This would mean your Ethereum transaction would be confirmed in less than a minute as Ethereum’s block times average between 13 and 14 seconds — much shorter than Bitcoin’s 10-minute block times.

Ethereum is still under active development, and EIP-1559 demonstrates that even core aspects of the system can be considered for a drastic overhaul. The EIP-1559 proposal promises to improve how transactions are processed, and to streamline user experience by decreasing transaction costs and making it easier to navigate fees in a less wasteful manner. EIP-1559 also could benefit ETH holders by restricting the supply of ETH through the burning of base fees. By replacing some of the current network’s burdensome technical obstacles with a more dynamic and automated system, EIP-1559 has the potential to be one of the most significant upgrades in Ethereum’s history.

EIP-1559 breaks the user-unfriendly status of the current fee market, while capturing the value of Ethereum network fees. David Hoffman called it “the last piece of the puzzle in Ethereum’s monetary policy,” and it was ETH “a key piece to gaining a monetary premium.”

However, it is difficult for EIP-1559 to fundamentally reduce the average handling fee because the persistently high handling fee is essentially a scalability issue rather than a mechanism design issue.

What do you think the emergence of EIP-1559 will bring to Ethereum?

ref:https://www.gemini.com/cryptopedia/ethereum-improvement-proposal-ETH-gas-fee

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Lunaray takes a leading position in smart contract auditing and consulting service for blockchain security.

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Lunaray takes a leading position in smart contract auditing and consulting service for blockchain security.

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