What is Ethereum EIP-1559 that will take effect after the Ethereum London upgrade?

After the Ethereum mainnet completed the London hard fork upgrade, the Ethereum EIP-1559 proposal came into effect, which also means that we are one step closer to switching from PoW to PoS.

In 2021, in addition to BTC, which remains firmly on the throne as always, DeFi will be a carnival hot spot throughout the year. While DeFi allows ETH to achieve value growth, it also makes its network increasingly congested and transaction fees increase, becoming an "unbearable burden" for the Ethereum ecosystem.

How to reduce ETH handling fees has become an urgent problem to be solved. In addition to solutions such as Layer2, EIP-1559 has also attracted industry attention. So what exactly isEIP 1559 and what is it used for? Let’s find out!

01
What is EIP-1559? What's the use?

##The Ethereum improvement proposal EIP-1559 was proposed by Vitalik in 2019. He tweeted: At present, Ethereum In the income structure of Ethereum miners, transaction fee income is close to half of the block reward, which may threaten the security of Ethereum.

Also emphasizes that “proposals targeting the fee market, such as EIP 1559, could address this issue.”

EIP 1559 aims to improve the efficiency of the Ethereum fee market, making transaction fees more predictable and processing Surge demand is more efficient, thereby capturing greater Ethereum value.

The content of the agreement mainly includes the following four points:

1. Let all transactions pay the same rate as much as possible to improve user experience.

Blockchain platforms such as Bitcoin and Ethereum use a first-price auction system (that is, a "sealed" auction in which buyers do not bid in order, but use written bids to bid simultaneously. Bidding in this way, the highest bidder will get the auction item at its bid level.)

In this method, during the bidding process, the bidder does not know the total number of people participating in the auction and the price of the subject matter, resulting in the bidder paying a lot more money, so cost estimating becomes a big issue.

EIP-1559 attempts to solve this problem by enforcing the same rate for all transactions whenever possible.In most cases, users only need to decide whether to pay the fee and no longer decide how much to bid. Since the fee estimate is more accurate, the handling fee is expected to be reduced.

2. Implement a flexible block size limit mechanism to balance the use of block space.

In the face of surging transaction demand and large differences in block usage, miners can allow certain blocks to be expanded as long as users pay, as long as other blocks are relatively small. Long-term average block size limit.

3. It is proposed to use permanent block subsidies to incentivize miners and improve network security.

When the block subsidy is used up, the blockchain platform may encounter problems if it only relies on transaction fees to ensure security.

EIP-1559 attempts to separate transaction fees and network security, and use more reliable permanent block subsidies to incentivize miners. Change the original transaction fee to the basic transaction fee and tip settings, destroy the transaction fee, and give the tip to the miners.

4. Specify that transactions must consume a specific amount of ETH, increasing the difficulty of economic abstraction.

Economic abstraction refers to the ability to use any blockchain asset, pay the handling fee for initiating any blockchain transaction, and the transaction operation itself.

EIP-1559 stipulates that transactions must consume a specific amount of ETH, and hopes to increase the difficulty of economic abstraction.

Because when users can use any Token to pay transaction fees, the reserve status and currency premium of the native Token will be threatened.

02
How is the progress of EIP-1559?

In early 2020, ConsenSys’s Protocol team agreed to help promote the development of EIP-1559. The team stated that regarding EIP- 1559 is currently being developed from four aspects: implementation, simulation, formal analysis, and community expansion.

On January 6, 2021, EIP-1559 has been implemented and launched on the Filecoin main network, and the FIL consumed by network transactions every day is approximately 100,000 to 150,000. Filecoin founder Juan Benet mentioned in his speech:

The adoption of this standard has achieved at least two key victories:

1. Fast lane for high-value transactions. As expected, integrating EIP-1559 provides Filecoin participants with a straightforward mechanism to resolve this congestion problem without always having to pay a high price.

2. Network capacity management. So far, EIP-1559's base fee mechanism has done a good job of keeping network capacity at 100% of its target.

And said that EIP-1559 has many compelling features that fit well with Filecoin’s design considerations. However, base charges vary widely and change rates are high, resulting in critical WindowPost messages being priced out.

The long-awaited Ethereum mainnet completed the London hard fork upgrade at block height 12,965,000, and EIP-1559 also came into effect. This also began to allow the Ethereum network to dynamically adjust each transaction based on transaction needs and block size. The Base Fee for each transaction will be burned directly. Data shows that within 13 hours of the London hard fork upgrade, more than 3,300 Ethereums were burned.

Therefore, the fees paid to miners are expected to decrease, also changing the consensus algorithm from Proof of Work (PoW) to One step further is the idea of proof-of-stake (PoS).

03
Summary

EIP-1559 breaks the current user-unfriendly status quo of the charging market, while capturing the Ethereum network The value of the fee. David Hoffman called it “the final piece of the puzzle in Ethereum’s monetary policy” and a “key piece to ETH’s ability to gain monetary premium.”

However, it is difficult for EIP-1559 to fundamentally reduce the average handling fee, because the continued high handling fees are essentially a scalability problem rather than a problem of mechanism design.

What value do you think the emergence of EIP-1559 will bring to Ethereum? Welcome to share your views in the message area.

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