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Ethereum has had a busy 2021, with the altcoin smashing through $2,000 and hitting an all-time high of $2,042 just over a month ago. Although its price success has since slowed, the much-debated EIP-1559 proposal remains a hotly debated subject.
EIP-1559 is an Ethereum update that will greatly alter the network’s structure and overall monetary policy. The implementation was agreed upon on March 5th, and it is now expected to coincide with the London hard fork in July 2021.
There has been a tonne riding on EIP-1559 since it was first proposed. Most notably, it has been seen by many as a magical wand capable of resolving Ethereum’s notorious gas fee hikes by overhauling the entire fee structure. Is that the case, though? That’s a difficult question to answer, especially given the amount of misinformation out there.
The above misinformation may be narrowly categorised as relating to three fundamental questions: 1) Can transaction fees eventually crash, 2) With a part of the miners revolting, will there be a chain break, and 3) How bullish for ETH is EIP-1559 really?
Will there be a fee fall?
Regarding the first question, the answer is that it is incredibly impossible, considering the fact that many people think it would. Consider this: What would EIP-1559 really accomplish? To begin with, it will replace the old bid-based transaction mechanism with a fixed price, or BASEFEE, that will change itself based on the level of operation and congestion on the network at any given time.
This ensures that everyone spends the same market rate, eliminating the kinds of spikes seen during the DeFi boom of 2020. Is it, however, that simple? Many people assume that the answer is no.
The new Ethereum Gas Report from CoinMetrics said the same thing.
“High transaction fees are fundamentally a scalability problem. If Ethereum can only process a few hundred transactions (on average) per block, there’s going to continue to be high fees as long as DApp usage keeps increasing. Gas prices will continue to be high as long as there’s high competition for block space.”
The same was reiterated by Columbia University’s Tim Roughgarden, with the Professor arguing that high transaction fees, with or without EIP-1559, are unlikely to level off, especially since it is not a mechanical design flaw.
What then? Well, according to CoinMetrics,
“Ethereum scalability solutions (Optimism, Loopspring, etc.) are on the way, which will be the true long-term solution towards decreasing transaction fees.”
All bark, no bite?
Now, the worries and fears over a potential chain break in the immediate future are entirely true, with Flexpool claiming that “developers have tossed them under the bus.” Although miner discontent was predicted, the miner-led “Show of Force” planned for April 1st was not.
Also with that in mind, the fact remains that inducing a chain break like this will have a detrimental effect on the viability of miners themselves. In all probability, miners would tend to see lower profit margins than face losses.
In any case, following some miners coming out in the open to oppose the aforementioned proposal, Ethereum developers have hastened to complete the transition to PoS. In fact, when the first reports broke out, Vitalik Buterin, one of the co-founders of Ethereum remarked,
“If some miners leave, new ones can come. If the miners attack 51%, we will all move to POS as soon as possible.”
Buterin even went on to release a document expanding on a possible “quick merge via fork choice change” plan, one that the programmer hoped would quell any talk of resistance.
At the time of writing, this seemed to do the trick as the “show of force” and “miner revolt” meant to happen on the 1st came to nothing. As a Redditor pointed out,
“They suddenly realized they were pointing a shotgun at their own feet— then common sense prevailed.”
Is it worth it?
Eventually, may EIP-1559 be considered bullish for ETH? In a nutshell, yes and no.
Yeah, since EIP-1559’s fee burn plan would improve scarcity and, as a result, demand formation, sending the price of ETH higher on the charts. According to Ben Edgington of Consenys, who spoke to OKEx Insights,
“EIP-1559 undoubtedly improves Ethereum. Insofar as price and protocol are connected, the effect should be positive. The absolute impact is impossible to know.”
In the other hand, one can answer the query in the negative since the output of miners in the ETH environment would be more strongly related to the results of the alt’s price. If ETH falls in value, combined with lower profit margins, unprofitability may set in, and miners will abandon the platform, posing a threat to Ethereum’s protection.
To put it plainly, nothing is certain. Uncertainty may become the new standard when EIP-1559 is implemented.