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Ethereum: What is everyone getting wrong about EIP-1559?

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Ethereum has had a busy 2021, with the altcoin surging on the charts to breach $2,000 and touch an ATH of $2,042 over a month ago. However, while its price performance has simmered down since, what is still actively an issue is the much-debated EIP-1559 proposal.

EIP-1559 is an Ethereum upgrade that is meant to dramatically change the network’s structure and overall monetary policy. An implementation of the same was agreed upon on the 5th of March, with the same now scheduled to go along with the London hard fork in July 2021.

Ever since it was first proposed, there has been a lot hanging on EIP-1559. Most of all, it has been seen by many as a magic wand that will resolve Ethereum’s infamous gas fee hikes by overhauling the existing fee structure. Is that the case, however? That’s a tricky question to answer, especially since there has been a lot of misinformation around.

The said misinformation can be classified broadly to relate to three fundamental questions, namely, 1) Will transaction fees actually fall, 2) With a section of the miners revolting, might there be a chain split and, 3) How bullish for ETH really is EIP-1559?

Will there be a fee fall?

As far as the first question is concerned, the answer is that it is very unlikely, even if a lot of people are under the impression that it will. Consider this – What will EIP-1559 actually do? Well, for starters, it will replace the old bid-based transaction system with a fixed fee or a BASEFEE that will adjust itself according to the level of activity and congestion on the network at any given time.

What this will do is it will ensure everyone pays the same market rate, avoiding the kind of spikes seen during the DeFi surge of 2020. Is it that easy, however? According to many, no.

The same was asserted by CoinMetrics’ latest Ethereum Gas Report. It said,

“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 questions and concerns associated with a possible chain split in the near term are perfectly valid, with the likes of Flexpool commenting that “developers have thrown them under the bus.” However, while miner resentment was anticipated, the miners-led “Show of Force” scheduled for the 1st of April was not.

Alas, even when accounted for that, the fact of the matter is that forcing a chain split like this would adversely affect the profitability of miners themselves. In all rational likelihood, miners would rather have slimmer 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?

Finally, on to the final question – Is EIP-1559 bullish for ETH? Well, yes and no.

Yes, because EIP-1559’s fee burn proposal will fuel scarcity, and by extension, value creation, pushing the price of ETH higher on the charts. According to what Consenys’s Ben Edgington told 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.”

On the other hand, one can also answer the question in the negative because the success of miners in the ETH ecosystem will be more heavily linked to the alt’s price performance. If ETH tanks, coupled with lower profit margins, unprofitability will set in and miners may drop off, threatening Ethereum’s security.

Simply put, nothing’s for certain. Uncertainty, perhaps, will be the new normal for when EIP-1559 comes in.


Jibin Mathew George is Editor-in-Chief at AMBCrypto. A domain expert in International Relations (European Politics), he has always been a believer in the unlimited possibilities afforded by blockchain and by extension, cryptocurrencies. As someone who has been watching and writing about this space for over 5 years now, Jibin has closely tracked the emergence of cryptos and digital assets as a separate asset class in portfolios world over. A lawyer by training, he previously contributed to the News and Research desk of Diplomacy & Beyond Plus. Before his stint at D&B, he was Editor at ED Times. Jibin also takes a great interest in politics, especially the corresponding effect political decisions and fiscal policy have on the world of finance, with a special focus on cryptocurrencies.
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