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The Ethereum test network Ropsten will undergo a backward-incompatible upgrade nicknamed “London” at block number 10,499,401. EIP 1559 establishes a baseline payment, commonly known as a “base fee,” for transmitting transactions on Ethereum that varies dynamically based on network activity and block space need. There have been numerous misconceptions concerning EIP 1559’s use and impact on end-users, miners, and investors since it was initially introduced in 2019.
Myth 1: EIP 1559 aims to reduce Ethereum’s exorbitant fees.
The goal of EIP 1559 is to make transaction fees less volatile and predictable by developing an algorithmic model that can automatically change charges by up to 1.125x every block. Due to Ethereum’s current blind auction-style fee mechanism, the cost of making a transaction can rise at any time, based on the ups and downs of the crypto markets. Fees are controlled by EIP 1559 to grow and decrease depending on the utilization of block space. The base charge will grow by 12.5% if blocks are filled over a predetermined “gas goal,” and vice versa.
Myth 2: EIP 1559 will improve the predictability of Ethereum’s monetary policy.
EIP 1559 implements a fee-burning mechanism that will permanently eliminate coins from Ethereum’s total circulating supply (ETH, 4.02%) (ETH). The base fee is burned rather than distributed to Ethereum miners to guarantee that miners have no financial motive to intentionally congest the network and keep the base cost high. EIP 1559 may reinforce a bitcoin-like narrative of limited supply to the investment case for ether as a result of this burning process. Given that the basic price dynamically varies based on network activity and demand for block space, it’s difficult to estimate exactly how much ether will be burned over time.
Myth 3: Ethereum miners are likely to abandon the network as a result of EIP 1559.
Miners are expected to lose 20% to 35% of their income if EIP 1559 is activated, therefore there have been petitions from mining firms on Ethereum to prevent EIP 1559 in its current form from being approved into the London upgrade. Amendments to EIP 1559 have also been submitted. Changes to the plan include not burning the base fee, boosting miner revenue from other sources like block subsidies, and tweaking Ethereum’s mining algorithm to make network reward competition more equal across miners.
Myth 4: EIP 1559 will fix Ethereum’s miner extractable value (MEV) problem.
On Ethereum, miner revenue has traditionally been made up of a set block subsidy and transaction fees. However, as high-frequency trading on decentralized exchanges (DEXs) has grown in popularity, miner revenue from MEV has become more attractive. MEV’s daily revenue has risen from half a million dollars at the start of the year to over $6 million in June, according to Flashbots, research, and development firm. MEV is the amount of money that miners may make as a result of their power to arrange transactions within a block. Because miner revenue from reordering, including, or filtering specific transactions inside a block can occur whenever a user interacts with another user or application on Ethereum, it’s difficult to measure.
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