ETHEREUM BIG UPDATE || EIP 1559 || LONDON HARDFORK EXPLAINED

Introduction

EIP-1ll559 is not coming to reduce the congestion and gas fee issue that ethereum is facing. It is coming for something different and this article will explain its purpose.

Ethereum has had a good run in recent times, not until the crypto dip that happened in Mid May 2021. With the rate at which 1 bitcoin price in India has increased in one year,  the dip is a good time for you to buy bitcoin in India and invest ahead of the bull. The value of the altcoin went up by over 30% in 2021 before the dip. Ethereum being the premier altcoin has received much criticism because of the congestion and charge per transaction.

To make this clearer, since mid-February, transactions of ETH ecosystem costs within the range of 16-20 dollars which is challenging for users that engage in micro deals. Crypto users worldwide are not happy with the recent hike in gas

The problem

The mechanism for transaction for the transaction fee is simple and gas rice is the reward miners get for processing transactions. These have resulted in inefficiency, and some of them include:

Expensive transaction fee: Ethereum transaction fee could go as high as $200 per transaction especially when the network is congested due to activities on DeFis and Dapps. This is a huge turn-off for traders and investors. 

Slow transaction time: they have to wait until a transaction is processed and this is a result of hard per block and how volatile the volume of transactions can be. 

EIP 1559 London Hardfork

ETH will be altered as a result of the proposed inclusion in the codebase. There are protagonists from the mining industry; their actions might not count because, by July, the Ethereum improvement proposal (EIP) 1559 will make up part of the London hard fork. EIP 1559 won’t be the single one; up to 4 others will be joining it too. The goal is to ensure that users have a good experience whenever they use the Ethereum blockchain. 

The regular ETH transaction requires you to send the miner a gas fee to include your transaction in the block. EIP is coming to change the way it is done. It will be in charge of giving gas fees (base fee) to the network. This fee will come in burn form and users only give out what they can afford to the miners. Algorithms determine the burn fee which means the process of making payment will be seamless for users.

The developers of ETH dapps and the end-users have shown massive support for EIP 1559 because they find it challenging to set a proper transaction fee. On the other end of the debate are the Miners and mining pools who are not in support of EIP 1559.  

The gold rush of ETH mining

In recent times, mining ethereum has been a very lucrative business. According to Coin Metrics, The total mining of this coin has surpassed $1.3B in the second month of 2021, and fifty percent of this amount came from fees only. The network has a new hash power wave resulting from the increase in the coin price and simultaneous fee charged per transaction. This value is two times what it was last year.

There have been challenges and one of the top challenges is minority mining pool launching marketing against EIP. Flexpool is the leading minority mining pool while Sparkpool and Ethermine are leading majority pools that also launched campaigns against the EIP. The EIP proposal looks like it has more Ethereum network power against it than it has for it because over 60% are not supporting the proposal. On the contrary, there is F2Pool that is in support of the EIP.

The developers of ETH have also chosen to join EIP with Ice Age. The ice age is the delay to the difficulty bomb that makes ETH mining more difficult on the network. The leader of the Geth team added that the delay and EIP 1559 together would make people shy away from forking ethereum without the need to pass some technical stress.

MEV comes to the rescue

Another factor to consider is the MEV. Currently, miners on the ethereum network can prioritize on-chain transactions to maximize their profits. Miner Extractable Value is the profits that miners get by censoring and order transactions. Due to bots and competitive bids, miners can be incentivized not to mine on the longest chain.

Consequently, EIP-1559 reduces miner’s incentives to try to mine older blocks. It accomplishes this by burning the ETH rewards paid to miners, which reduces their incentives to focus on older blocks after new ones have already propagated.

Conclusion

What the new plan is aimed at doing is to ensure that protocol based on network congestion does the check and balances in the base fee of EIP. If the target per block exceeds gas usage, there is an increment in the base fee and if it doesn’t exceed, there is a decrease in the base fee. Predicting the base fee for different blocks becomes more straightforward. This means wallets can automatically fix gas fees. This development will allow users to make manual adjustments to the gas fee whether high or low capacity. Most users, their wallets will estimate the base fee, and miners get compensation with a small priority fee. The maximum fee to be spent on transactions will also be easy to set by users. 

If all these go well, users will more willing to use the Ethereum network and ETH may witness a price surge similar to bitcoin price INR. 

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