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EIP-1559, contrary to common opinion, does not aim to alleviate Ether’s pollution or gas fee problems — so, what is it for?
Ether (ETH) has been on a roll lately, with the premier altcoin’s valuation rising from $1,800 to a high of $2,480 since the beginning of April, representing a roughly 30% increase. This new surge in monetary traction follows a period in which Ethereum has faced a barrage of scrutiny for increasing network congestion and transaction costs.
To bring this into context, the total cost of conducting transactions on the Ethereum ecosystem has remained above the $16–$20 range since the second half of February, making it impossible for individuals seeking to initiate smaller transactions to use the network. In reality, on February 23, the above-mentioned fee value reached an all-time high of $42, drawing the wrath of the crypto community as a whole.
The Ethereum network recently underwent a hard fork dubbed “Berlin,” which can be thought of as a network overhaul that includes four Ethereum Improvement Proposals that aim to change the ecosystem’s gas fee conditions as well as allow for some additional transaction modes.
The Berlin update appears to be setting the groundwork for the much larger London hard fork, which will allow EIP-1559: a widely awaited, though contentious, rewrite of Ethereum’s current fee structure.
Will EIP-1559 resolve all of Ethereum’s pains?
Though on paper the upcoming London hard fork promises big things, it is still quite pertinent to delve into the question of whether EIP-1559 will be the long-term solution that Ethereum needs to resolve its scalability problems for good.
Cointelegraph spoke with Abdelhamid Bakhta, one of the six primary authors of EIP-1559. He pointed out that as things stand, there is currently a lot of misinformation and half-baked knowledge floating around the web in regard to the upcoming London upgrade.
For starters, Bakhta clarified that reducing current congestion and high fees is not the purpose of EIP-1559, but rather, it seeks to introduce the concept of “block elasticity,” which means that the theoretical maximum capacity of the platform is doubled. He further added:
“Transaction fees are a function of supply and demand. And technically, there is no increase in the average available block space because the base fee mechanism is designed to tend to half of the maximum block capacity. So, the short answer is no, the upgrade will NOT be the long-term solution that Ethereum needs to resolve its scalability problems.”
In a more positive note, he did add that if more layer-two implementations are implemented, all of the network’s charge and latency problems will finally be resolved.
Concerning miners’ dissatisfaction with the planned 50% reduction in mining incentive ratios following the introduction of the London hard fork, Bakhta said that it is easy to see why some miners are opposed to the plan. “Along with gas fees reaching their highest levels in years, Ethereum mining has evolved into a full-fledged business,” he added.
However, he did state that miners already knew that their business was going to come to an end when Ethereum finally did transition to a proof-of-stake framework, adding that while he understands that this cut down is hard to accept, the change was inevitable. Bakhta further pointed out: “It is not like they were not aware of this proposal. The idea was first introduced by Vitalik in an article named ‘First and second-price auctions and improved transaction-fee markets’ in July 2018.”
Layer-two solutions are the need of the hour
Jan Strandberg, co-founder and chief development officer for DeFi network Yield App, shared his thoughts about how the forthcoming EIP-1559 will benefit the Ethereum ecosystem, pointing out that while the update may provide some relief to developers and DeFi traders who are tired of high gas fees and long wait times, it is a short-term solution to Ethereum’s overarching problems.
According to him, a true revolution would occur as Eth2 goes online, allowing the network to scale up its transaction capability from 15 to 100,000 transactions per second. He went on to say, “This will be the real game-changer — not just for Ethereum, or even DeFi, but likely for the entire cryptocurrency industry.” It would pave the way for widespread adoption.” As a result, it appears that the upcoming London hard fork will only affect Ethereum’s peripheral economics, without having a significant impact on scalability.
Anton Bukov, co-founder of DEX aggregator 1inch Network, told Cointelegraph that the new London hard fork would be shocked if it goes live before September. In terms of Ethereum’s scalability issues, he believes that rather than focusing on EIP-1559 as the ultimate solution, users can also rely on layer-two solutions, adding:
“I am very inspired by zkPorter from Matter Labs, which should help Ethereum achieve 20K TPS. Can’t wait to see Ethereum switch to PoS to allow ETH holders to manage network upgrades.”
Potential risks associated with EIP-1559
In terms of any of the possible grey areas involved with EIP-1559, Bakhta believes that, as of now, the Ethereum developer team seems to have addressed all of the potential risks associated with the proposal. He continued, saying:
“There were two big aspects to consider: the economic analysis and the performance impact. The goal of the economic analysis was to determine if the new market model was secure and not vulnerable to attacks. Regarding the performance, there were some concerns about whether or not the network could handle twice as big blocks. And the answer is yes.”
On a more technical note, Bakhta said that the team has successfully processed blocks approximately four times the existing size of the mainnet — even more than what EIP-1559 suggested bringing to the table — adding, “EIP-1559 was a fantastic journey for me.” It was wonderful to see the teamwork among all of the teams, scholars, authors, and economists. This is my most significant professional accomplishment.”
Strandberg believes that Eth2 is what it all comes down to. “When Eth2 is released, we will see something truly special that will be well worth the wait,” he said. A crypto-economic network, such as Ethereum, must continuously balance the security budget needed to keep its system stable with what miners (over)charge. Furthermore, following recent substantial increases in gas prices on the Ethereum network, EIP-1559 seems to be an overdue correction in favour of Ethereum’s ever-growing user base.