- EIP 1559 has proposed as a replacement for the current Ethereum’s fee mechanism.
- In an attempt to improve the current fee model, EIP will provide efficient prices and will reduce complexities associated with consumer software.
Vitalik Buterin, the Ethereum founder, recently drafts a guide on EIP 1559, which proposed a way to reform the current Ethereum’s fee mechanism. This is as the current fee model of Ethereum features inefficiency and lacks cost-reductions. Thereby, in an attempt to erase these dysfunctionalities, EIP takes the role to offer better prices. Besides providing efficient prices, it seeks the complexity reduction of consumer software.
The main changes this proposal will feature are as below:
- Firstly, the two values will replace the current gas limit of 10 million. A value of 10 million, a long-term average target, and then a 20 million value, a hard per-block cap.
- Secondly, the protocol will itself adjust the base fee to target gas usage of 10 million. Earlier, miners used to improve the gas limit directly.
Vitalik Highlights main motivation behind EIP 1559 proposal
- To overcome the mismatching between transaction fee volatility and transaction social costs: Large public blockchains tend to feature extreme fluctuations concerning the transaction fees. And on a mature blockchain like Ethereum, the minimum fee ranges between 2 gwei and 20-50 gwei. And this blockchain has witnessed the fee even rising to over 200 gwei. Hence, to eradicate this shortcoming is one key motive.
- To eradicate the inefficiencies of first-price auctions: The current mechanism costs complex fee estimation algorithms. And sometimes, these highly complex algorithms fail to work too. Thus overcoming this mechanism involving overpayment is another cause.
- To get rid of the instability of blockchains with no block reward: Few blockchains reward their miners entirely based on transaction fees. This, however, calls volatility wherein it creates space for mining attacks.
A comparison of scenarios under EIP 1559 and the status quo regarding high-usage
The situation under the status quo involves the user to wait for more than N block. Whereas under EIP 1559, users need to wait in between N/2 and more than N blocks. Given a scenario that N blocks filled with new transactions, the forthcoming spiky transactions get added to gas prices.
On the other hand, under EIP 1559, each new spiky transaction is double the average gas amount. Thus, it fills only N/2 blocks in general. However, it is important to note that high-priority transactions set high gas price caps. Thus making themselves the way to include first, and then others.
Benefits of EIP 1559
- Lessens the social cost inefficiencies: The key benefit of it is that it reduces the social cost inefficiencies resulting due to fee volatility. In the short run, the mechanism will work as a fixed fee and cap.
- Replaces the price auctions by a fixed sale: Another enhancement is that it will replace the auctions by a definite price sale. Forbye, it eliminates the first-price-auction inefficiencies and offers simplification regarding fee-estimation. However, excluding the short periods during which the blocks fill up entirely.
- Solves instability issues: Its mechanism shares similarity with a permanent block reward. Wherein it will solve the majority of the instability related issues eradicating the fee-only blockchain mechanism.