Here’s why there’s more to Ethereum’s EIP-1559 than basefees
Ethereum‘s price took a tumble of 15% this week, with the alt even dropping to $1,651 briefly. Despite the altcoin’s price struggles, however, developments associated with the blockchain have not stopped. In fact, on 24 June, the London upgrade went live on the Ropsten testnet. Lead developer Time Beiko revealed the same when he tweeted about the first block being produced on the testnet.
“We have a block! Took a bit longer than expected, but London is live on Ropsten”
This upgrade followed Berlin and included the addition of EIP 1559, the EIP that has been vastly hailed for the modifications it will bring to the network and alter the transaction fee calculation mechanisms. However, EIP-1559 is no just about impacting transaction fees.
With the much-awaited and controversial protocol upgrade finally being deployed on the testnet, it’s worth looking at what it entails, especially at what changes it will bring, apart from fees.
While the easing of the fees has been one of the many talked-about features of the protocol, there are other benefits for the network too including security aspects, changing incentives for short-term reorganizations, and breaking economic abstraction.
Preventing DOS attacks
According to a Twitter thread by Evan Van Ness, a popular crypto-blogger, EIP 1559 is an “important *security* upgrade.” While the Berlin upgrade was an important step in thwarting DOS attacks on Ethereum, 1559 will be a crucial, long-term step to prevent DOS attacks, as per Ness. Under the 1559 protocol change, it will become more expensive for users to spam the chain while shorting to make a profit. This will be a huge benefit for the network as it would make it hard to spam attach the Ethereum blockchain.
Adoption of Layer 2
Currently, mining pools include payouts to miners at a $0 gas price. However, with protocol 1559, miners will have to burn half the base fee, to avoid doing this. The mining pools, instead, will be incentivized to use layer 2 or a sidechain. The protocol will help free up block space and push the adoption of layer 2.
Short-term reorgs to note fewer incentives
The miners can create some adverse incentives for chain stability, but with 1559, the ratio between block rewards and transaction fees will change. Thus, reducing these incentives for front-running transactions.
Even though EIP-1559 could lead to negative issuance, it will put substantial upward pressure on the fiat price of Ether, Ness added.
Now, EIP-1559 is only a few weeks away from the mainnet. The upgrade will provide a better UX by making transaction fees predictable. However, this will also depend on the performance reported on the testnets. The next phase towards the full rollout of the London hard fork is the deployment on the Goerli testnet on 30 June, followed by Rinkeby testent, which will be the last testnet. The final London hard fork for the mainnet is scheduled for later in July.