Ethereum developers see new fee model as rising gas costs

Take away:

  • Demand for transactions over the Ethereum blockchain has driven fees to inconvenient levels.
  • A new technical proposal helps address high fees by implementing a dynamic pricing system.
  • Under the name EIP 1559, Ethereum users would now pay a fixed “basic fee”. to the network plus a tip for miners.
  • A technical observer calls it “the biggest change from a blockchain since it was released”.

The cost of using Ethereum has increased by around 500% since April. This is not very helpful for people who run programs on it.

And while average gas charges aren’t at the all-time high of July 2018, the problem needs to be addressed if decentralized applications (dapps) can run reliably on the world’s leading smart contract blockchain.

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However, a potential technical savior is on the horizon – and it’s not the overhaul of Eth 2.0 or rollups, the latest in vogue scaling solution.

Read more: Vitalik Buterin clarifies comments on the expected launch date of Eth 2.0

This proposed update, called the Ethereum Improvement Proposal (EIP) 1559, aims to reduce transaction costs by revamping the network’s fee market in what independent analyst Hasu describes as “the biggest change to a blockchain post release”. â ???? Â

Some Ethereum customers, the teams that maintain the blockchain software in different programming languages, are already working on implementations.

EIP 1559

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EIP 1559 was launched in April 2019 and has roots that trace back to an August 2018 paper on Ethereum’s price auction model, authored by Ethereum co-founder Vitalik Buterin. The EIP itself was co-authored by Buterin and Ethereum developers Eric Conner, Rick Dudley, Matthew Slipper and Ian Norden.

EIP 1559 tries to counter the pressure of fees by implementing “algorithmic pricing”. according to the Ethereum Foundation researcher Barnabé Monnot in a technical deep dive

The EIP solves two problems at once by dynamically changing the size of the blocks between certain thresholds based on the number of transactions in the queue, and pricing certain users when demand becomes too high.

This is done in two parts: a basic burned fee (BASEFEE) for the transaction and a tip for miners

The basic fee will be at a fixed level depending on the network conditions, while the tip compensates the miners for their work and can be increased to “skip”. the transaction line â ???? a nice feature of current blockchain networks that helps reduce congestion.

Think of it like a regulated freeway that can open and close lanes as needed. There is also a fast lane that someone can pay for if they have to slide in an emergency.

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The configuration also helps with bottlenecks where it is almost impossible to process a transaction. To date this has happened twice: once with the rise of CryptoKitties in 2017 and most recently on March 12th (or “Black Thursday” ????) when the price for Ether (ETH) rose by more than 30. % fell in 24 hours resulting in a crazy shot for killing various Ethereum based applications.

A counter-proposal

Not everyone wants to throw out the baby with the bathwater. Etheruem has a fee problem, but that doesn’t mean you have to abandon the current model entirely.

EIP 2593, written by MetaMask developer Dan Finlay, suggests an “escalator algorithm”. which allows users to change their fee structure based on their relative needs. In short, the EIP allows a user to tune a transaction fee to the lowest possible amount by slowly escalating the transaction fee until a miner decides to add it to the next block. (A more complete breakdown of the pros and cons of EIP 2593 can be found here.)

Ethereum developers liked the idea – so much in fact that the EIP is likely to be used in addition to EIP 1559 to optimize the latter’s ‘tipping’. Specialty. On June 24th, the developers decided to start a testnet to model the effects of EIP 1559 and other tangential work on the network.

Ethernomics

As Hasu, the pseudonymous blockchain researcher, notes, these effects could be far-reaching.

While miners are currently rewarded at ETH for processing transactions via a block bonus and a transaction fee, nothing makes the name of this fee specific to ETH. For example, a team could reach out to a mining pool and pay them in fiat to route their orders first.

In particular, EIP 1559 forces Ethereum transactions to be paid for in the native token of the blockchain. The base fee is denominated in ETH, paid to the network and then burned with every transaction, which also reduces the amount of ether outstanding in the long run.

(At some point, Ethereum won’t pay any mining rewards at all once the network switches to proof-of-stake [PoS] Consensus algorithm in the mother-of-all network updates known as Eth 2.0. The current network Eth 1.x will be operated alongside Eth 2.0 for a few years until the PoS chain is fully functional.)

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Consequently, the incineration is also creating new deflationary pressures on Etheruem’s economic model, pressures that some argue would give the network a higher value proposition in the long run

â ?? The burning of BASEFEE, which makes up the bulk of the transaction fees, is a deflationary force for ETH. It promotes its scarcity and links its scarcity to the growth of the Ethereum economy, â ???? David Hoffman, COO of Ethereum investment firm RealT, told CoinDesk. â ?? The issue of ETH that pays security initially undermines the value of ETH. If BASEFEE burns a lot of ETH, the value of ETH should be higher as it is scarcer.

Mining incentives

In practice, miners may have the most to lose. High transaction fees – like an alleged Ponzi scheme that “accidentally” sent several million dollar fees. a???? It’s unlikely to happen under the new system that puts user experience above miners’ paperbacks.

“It is better for the users because the base charge becomes a constant and users don’t have to worry about sending a TX”. [transaction],a???? Kosala Hemachandra, CEO and Founder of MyEtherWallet, said in an email. “You don’t have to know how congested the network is or when your TX will be released.”

Read more: Ethereum’s ProgPoW debate is about a lot more than just mining

However, intuition cannot be a valuable guide. Mining pools operate on the assumption of long-term block rewards, which makes them less concerned about programmatic changes than initially thought

Xin Xu, CEO of SparkPool, told CoinDesk in an email that both he and the pool believe that “a better fee model design is needed”? and that the group has supported EIP 1559 for a long time. (For reference, SparkPool once operated under the name EthFans.)

• Maximizing each block reward is important for mining pools, including SparkPool. However, I think making the Ethereum network a better network is a priority [over] Maximize every block reward to SparkPool and me, â ???? said Xu.

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