A London tour guide: What the EIP-1559 hard fork promises for Ethereum
Ether (ETH) has been on a tear recently, with the premier altcoin’s value increasing from $1,800 to the peak of $2,480 since the start of April, showcasing a growth of nearly 30%. This latest wave of monetary momentum comes in the wake of Ethereum being on the receiving end of a lot of criticism regarding rising network congestion and transaction costs.
To put things into perspective, since the second half of February, the average cost of facilitating transactions on the Ethereum ecosystem has continued to hover above the $16–$20 range, making it quite impractical for individuals looking to facilitate smaller transactions to make use of the platform. In fact, on Feb. 23, the above-stated fee value shot up to an all-time high of $42, thereby drawing the ire of the crypto community at large.
The Ethereum network recently underwent a hard fork labeled “Berlin,” which, in its most basic sense, can be thought of as a network upgrade that incorporates four Ethereum Improvement Proposals that seek to modify the ecosystem’s gas fee requirements as well as allow for certain new transaction types.
The Berlin update seems to be laying the groundwork for the much bigger London hard fork, which will activate EIP-1559: a highly anticipated, albeit controversial, overhaul of Ethereum’s existing fee structure.
Will EIP-1559 resolve all of Ethereum’s pains?
Though on paper the upcoming London hard fork promises big things, it is still quite pertinent to delve into the question of whether EIP-1559 will be the long-term solution that Ethereum needs to resolve its scalability problems for good.
Cointelegraph spoke with Abdelhamid Bakhta, one of the six primary authors of EIP-1559. He pointed out that as things stand, there is currently a lot of misinformation and half-baked knowledge floating around the web in regard to the upcoming London upgrade.
For starters, Bakhta clarified that reducing current congestion and high fees is not the purpose of EIP-1559, but rather, it seeks to introduce the concept of “block elasticity,” which means that the theoretical maximum capacity of the platform is doubled. He further added:
“Transaction fees are a function of supply and demand. And technically, there is no increase in the average available block space because the base fee mechanism is designed to tend to half of the maximum block capacity. So, the short answer is no, the upgrade will NOT be the long-term solution that Ethereum needs to resolve its scalability problems.”
However, on a more optimistic note, he did add that as more and more layer-two solutions continue to be adopted, all of the network’s fee and congestion issues will eventually be sorted out.
On the subject of miners being unhappy with the proposed 50% reduction in their mining reward ratios following the implementation of the London hard fork, Bakhta opined that it is quite evident to see why some of the miners are opposed to the proposal. “Along with gas fees reaching their highest levels in years, Ethereum mining itself has become a full-scale business,” he added.
However, he did state that miners already knew that their business was going to come to an end when Ethereum finally did transition to a proof-of-stake framework, adding that while he understands that this cut down is hard to accept, the change was inevitable. Bakhta further pointed out: “It is not like they were not aware of this proposal. The idea was first introduced by Vitalik in an article named ‘First and second-price auctions and improved transaction-fee markets’ in July 2018.”
Layer-two solutions are the need of the hour
Providing his thoughts on the subject of how the upcoming EIP-1559 stands to help the Ethereum ecosystem, Jan Strandberg, co-founder and chief growth officer for DeFi platform Yield App, pointed out that while the upgrade may bring a modicum of relief to developers and DeFi traders who are weary of high gas fees and long wait times, it is a short-term solution to Ethereum’s overarching issues.
In his view, a real breakthrough will only be witnessed when Eth2 finally goes live, allowing the network to scale up its transaction capabilities from 15 transactions to 100,000 transactions per second. He went on to add: “This will be the real game-changer — not just for Ethereum, or even DeFi, but likely all of cryptocurrency. It will pave the way for real mainstream adoption.” Therefore, it seems that the upcoming London hard fork fundamentally only changes the peripheral economics of Ethereum, without making a significant effect on scalability.
Anton Bukov, co-founder of DEX aggregator 1inch Network, told Cointelegraph that he will be surprised if the upcoming London hard fork even goes live before September. In terms of Ethereum’s scalability woes, he agrees that instead of looking toward EIP-1559 as an ultimate solution, users should focus their vision on layer-two solutions, adding:
“I am very inspired by zkPorter from Matter Labs, which should help Ethereum achieve 20K TPS. Can’t wait to see Ethereum switch to PoS to allow ETH holders to manage network upgrades.”
Potential risks associated with EIP-1559
Talking about some of the potential gray areas associated with EIP-1559, Bakhta opined that as things stand, the Ethereum developer team seems to have covered all of the potential risks associated with the aforementioned proposal. He elaborated:
“There were two big aspects to consider: the economic analysis and the performance impact. The goal of the economic analysis was to determine if the new market model was secure and not vulnerable to attacks. Regarding the performance, there were some concerns about whether or not the network could handle twice as big blocks. And the answer is yes.”
On a more technical note, Bakhta highlighted that the team has been able to successfully process blocks that are nearly four times the current size of the mainnet’s — even more than what EIP-1559 proposed to bring to the table — adding: “EIP-1559 was a fantastic journey for me. It was great to see the collaboration between all the teams, researchers, authors, economists. This is my personal biggest achievement.”
Strandberg is of the opinion that Eth2 is what it all boils down to. “When Eth2 comes, we will really see something special that will be well worth the wait,” he added. A crypto-economic network like Ethereum has to constantly balance the security budget required to keep its system secure and what miners are (over)charging. Furthermore, after gas prices increased significantly on the Ethereum network recently, EIP-1559 is coming across as an overdue correction in favor of Ethereum’s ever-growing user base.