Ethereum EIP 1559 Explained In Under 5 Minutes

I did the research so you don't have to, let me break it down for you.

First of all I want to say that any significant improvement in user experience is a big deal in my books! It's just a matter of time before it's priced into the market, and rightfully so. I wouldn't be surprised to see at least a small rally behind the good news coming from the Ethereum camp.

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Ethereum EIP 1559 Explained

With EIP 1559 now scheduled for July's London Hard Fork update I wanted to know what's in this Ethereum Improvement Proposal, and is it a big deal?

The Problem

High fees are a challenge to platforms trying to attract new users, especially when it's not abundantly clear to new users exactly how much one should be paying to process a transaction. Nothing worse than unpredictable fee's.

It's hard to know how much to spend on gas, and what you're presented with is a suggestion which comes from the people processing the transactions. As a result users are paying the suggested price and are often overspending.

That suggested price goes straight to miners, they're making bank off of Ethereum's inability to scale and everyone knows it.

Understand one thing here, the problem being solved is not high fee's, but rather a User Experience issue.

We all remember the first few times you had to pay for an ETH transaction. How much do I pay, where do I find this out, do I pay the suggestion, do I pay more to speed things up, is that how it works?

Let's be honest the Ethereum UX is fucking brutal for new users, as is the case with many legacy chains.

The Solution

Ethereum EIP 1559 is designed to ultimately help people have a better idea of what to pay and feel confident that they aren't needlessly overpaying. Another way of looking at it may be preventing miners from taking advantage of ETH's inability to scale.

Transaction fee's will still be high, that's a scaling issue that is not being solved here.

EIP 1559 solves this UX issue by redesigning the fee schedule. We will soon see the creation of a base fee for transactions, with an optional tip to miners(which will still have to be paid as far as I can tell).

The end results will be a fee structure that is more user friendly, with the down side being smaller than normal transaction fees going to miners.

This is intended to help with user interface design, and in my opinion will be implemented in a way where users can feel more confident that they're paying the correct fee, as apposed to the guess work of a fee that has been suggested.

Oh and that new base fee, we'll it's going to be burnt!

New Deflationary Pressure On ETH Supply

Let's be honest, the days of mining ETH for profit are quickly coming to an end, and it just got fast tracked.

Forget the migration to ETH 2.0 in a couple years, EIP 1559 in the July hard fork will seriously put the hurt on ETH miners. Some estimates I've heard indicate profitably will be down by as much as 30% or more. This is make or break for a lot of pools depending on their profit margins and how much they're paying for electricity.

Essentially the inflationary fee schedule is becoming deflationary. There will be less Ethereum entering the network. This is deflationary pressure on the Ethereum supply, and is being dubbed an "ETH Buyback" by some.

Last month ETH miners earned a staggering 1.3B in revenue, apx. 50% of that coming from fee's.

ETH miners are pissed, and rightfully so. At minimum I think they figured they would have at least another year or two of mining before they are phased out. Now they're looking at a matter of months before their profitability takes a major hit. Not news any business want's to hear.

It should be noted that F2POOL is in favour of EIP 1559. F2POOL is the largest mining pool and accounts for apx 10% of the total hash rate.

Will other mining pools reject the July fork? Not likely in my opinion for the simple reason that a 51% attack on the Ethereum network would be perceived as hostile and would very likely decrease the value of ETH, at least short term. We shall see.

EIP 1559 Further Explained

I liked this video as it dives a little deeper into a few different aspects of Ethereum's monetary system, and the history of the proposal.

What does EIP stand for in Blockchain?

Ethereum Improvement Proposals (EIPs) describe standards for the Ethereum platform, including core protocol specifications, client APIs, and contract standards. -https://eips.ethereum.org/

There you go, EIP 1559 explained in under 5 minutes!

Hope this post helps bring you up to speed.

Ciao for now,

@agr8buzz