What impact will EIP-1559 bring to Ethereum?
Original title: "Ethereum EIP-1559 and Value Capture of ETH"
Original source: Blue Fox Notes
EIP-1559 is an important proposal of Ethereum, which will have a major impact on the value capture, user experience, security and other aspects of ETH in the future. In the short to medium term, the price impact of the EIP-1559 proposal on ETH may be second only to ETH's PoS, and in the long run, it may have a more lasting influence.
What is EIP-1559?
EIP-1559 is essentially about the Ethereum network transaction pricing mechanism The solution, which includes a fixed part of the base fee of each block network fee (that is, the base fee, will be destroyed, and the miners will not receive this fee), as well as a dynamically scalable block size design to deal with Instantaneous network congestion.
Although the base fee per block is fixed, it The base fee per block will be adjusted according to the congestion of the network. It has a formula to adjust the rise or fall of the base fee. It will be adjusted according to the gas used in the previous block and the target gas (gas target, previously known as the gas limit). When the block is higher than the target gas price, the base fee increases, and when the block is lower than the target gas price, the base fee decreases.
In addition to the basic fee, there can also be a reward fee (tip) . During congestion, tips are used to incentivize miners to pack user transactions into blocks. Transactions can specify a base fee and an upper bound for the tip. The proposal also includes transitional options. At the beginning, half of the blocks retain the original bidding mechanism, half adopt the new fee mechanism, and gradually transition to the new scheme.
Here are a few key points:
*Fee Structure
Basic fee + tip
Basic fees will be destroyed, and miners cannot get them; miners' income is mainly new block rewards + tips
*elastic block
Scalable blocks are used to cope with network congestion, and the base fee is also adjusted according to the congestion situation.
Why EIP-1559?
For transactions that occur on Ethereum, the current charging scheme is an auction mechanism. The user bids, and the miners choose the transaction with the highest bid and pack it into the block. This method seems simple and efficient, but there are also problems:
* Inefficiency of bidding
The lowest bid on Ethereum There can be huge differences. This leads to inefficient bidding. Users choose the fee cap for bids when they send transactions, and miners choose the transaction with the highest bid. For users, it is difficult to predict how much is appropriate to bid. Even if there is a complex cost estimation algorithm, it is impossible to make a good estimate, and overpayment often occurs.
* causing delay
Due to the limitation of the gas limit per block and the natural fluctuation of the transaction volume, this will cause the transaction may need Wait for several blocks to be packed into it. For users, it may cause delays. EIP-1559 proposes the mechanism of elastic blocks, which can make one block larger and the next block smaller, so as to achieve a longer-term average block size limit and allow different blocks to have certain size differences. This solves the current situation where some blocks are overfilled and some blocks are underused.
*Security
With the reduction of block rewards (such as Bitcoin and Zcash), future transaction fees become the main reward for miners source. Therefore, there needs to be a sufficient transaction scale to support the security of the network, and it may also lead to problems such as selfish mining of miners, resulting in some unstable factors.
EIP-1559 has changed the payment structure to address the above issues And payment flow: the transaction fee is divided into basic fee + tip. At the same time, the basic fee is destroyed and miners cannot obtain it. Miners can get reward fees and newly issued block rewards, thereby reducing the motivation of miners to manipulate transaction fees , and give various participants, including miners, the opportunity to benefit.
In addition, in the design of EIP-1559, when the network exceeds For the target gas usage per block, the base fee will increase in the following blocks and decrease when the capacity falls below the target gas usage. Therefore, changes in gas fees are adjusted according to demand, and the difference in fees between blocks is predictable.
This will improve the user experience. Before the implementation of EIP-1559, Ethereum used the first price auction mechanism (First Price Auctions) similar to Bitcoin. One of its shortcomings is the need for cost estimation. EIP-1559, on the other hand, enforces the same fee rate for all transactions as much as possible. What users need to decide is whether to pay the fee, without thinking too much about how much to bid. The wallet can help users predict the basic fee and automatically set a small tip fee, which reduces the manual adjustment of the gas fee for most users. Of course, it is also possible if the user manually sets the upper limit of the transaction fee, and the user can limit the maximum cost by manually setting the upper limit of the fee.
In addition to improving user experience, it can also improve the security of Ethereum As well as solving problems such as economic abstraction.
Because miners only capture reward fees in transaction fees, and Base fees are burned by the protocol, which removes the incentive for miners to operate fees to earn more fees. More importantly, it changes the value capture mechanism of ETH. The previous ETH more represented the value circulation and value storage on Ethereum, and did not capture the value of the fee itself.
The base fee changes that. The capture of basic fees means that ETH starts to capture the transaction fees of the Ethereum network, and the amount of transaction fees depends on the transaction size on Ethereum. As the size of Ethereum transactions increases, the more fees can be captured in ETH.
At the same time, Ethereum transaction fees before the implementation of EIP-1559 During the payment, it is not necessary to pay with ETH. After the implementation, the basic fee is paid in ETH, which also solves the problem of "economic abstraction" discussed earlier to a certain extent. The so-called "economic abstraction" means that users can use stable coins or other tokens to pay fees. This will not only threaten the position of the native token ETH in the network, but also be detrimental to network security. EIP-1559 requires a specific amount of ETH to be consumed, which increases the difficulty of economic abstraction.
If the transaction size on Ethereum is large enough, then it can Capturing a large amount of basic fees, these basic fees paid in ETH will be destroyed, which will reduce the inflation rate of ETH, and may even deflate (assuming that the issuance is lower than the destruction). This is conducive to the value support of ETH.
From the perspective of security, in the incentives of Bitcoin, When the block subsidy is over, it mainly relies on transaction fees to maintain its security. How this model can be sustainable is still controversial. Ethereum, on the other hand, destroys transaction fees and encourages miners to continue operating through block rewards. This is a more flexible mechanism. Due to the destruction of transaction fees and the transfer of value to ETH, Ethereum uses ETH block rewards to subsidize miners, which provides a basis for the long-term sustainability of Ethereum security.
EIP-1559 supports the value of ETH
Through the past period of practice, we can see that there are big problems in the value support of purely mining tokens. Some mining reward tokens, or so-called "governance tokens", have a lot of selling pressure, but the value support is not enough, which eventually leads to a decline in currency prices, a decline in incentives, and even many tokens with a death spiral.
Some leading DEXs have good trading volume and good liquidity , the annualized transaction fee of the agreement is also very high, and the fundamentals are good, but it is also unable to support the value. Because they are also facing the situation of "digging, selling and withdrawing". The token itself is only a "governance token" and does not capture protocol value. Among the current protocol fees, most of the proceeds are still not integrated into the tokens, but are directly distributed to LPs. This means that the value growth of tokens and protocols has not reached a high degree of integration. This is why their value cannot be sustained under the current circumstances. Of course, this situation may change with the deepening of governance in the future, because governance itself can change this situation. The current governance tokens more represent the possibility of the future.
EIP-1559 has a similar impact on ETH. ETH before the implementation of EIP-1559 did not capture the value of Ethereum network fees, which caused ETH to be completely unable to realize the support of value when the bubble burst, falling from the peak of nearly $1,500 at the time of the bubble to more than $100 at the bottom.
And ETH before EIP-1559 will capture the Ethereum network The value of the fee, as of the writing of Blue Fox Notes, the annualized network fee of Ethereum exceeded 1.3 billion US dollars, which is not a small fee.
(current encryption field protocol capture annualized fee ranking, tokenterminal)
This means that in the future, in addition to being a value storage and value medium, ETH can also truly capture large-scale value. In terms of its current value capture scale, it is currently the most powerful of all public chains, which gives ETH a more solid value support in the future.
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