The fees used on the Ethereum blockchain are about to witness a technical and financial overhaul. This change comes with the famous EIP 1559 resource. But what is EIP 1559?
March 5th, 2021 marks an important date in the Ethereum community. Ethereum developers agreed on a new structure for the fees on the blockchain, that will take place in July 2021. Nonetheless, this change was met with huge criticism from the miners’ community. Let’s dive in to understand what this divide is all about.
What the Hell is EIP 1559?
In layman’s terms, EIP 1559 stands for Ethereum Improvement Proposal. The number 1559 stands for the change reference in the GitHub community for Ethereum’s open-source developers. EIP 1559’s change would bring a major change to how fees are structured from a technical coding perspective, and how they are calculated from another financial side.
Normally, the user sends a gas fee to the miner, who will include it in the block. Enter EIP 1559, which would flip a typical blockchain transaction in order to fix user experience issues. This flip means that a fee would be sent to the whole network as a “base fee” instead of to the miner. In this case, the user would optionally tip the miner. Naturally, this fee would be algorithmically set, making the user pay a much fairer fee. On the other hand, how would we define how much that fee is? What if that fee was “way too low” for the profitability of the miners?
EIP 1559 created a Conflict between Miners and Developers
In order to better understand the EIP 1559 divide, we need to draw a similarity in the practical world. In a typical corporate company, we have the high managers and the shareholders:
- High Managers seek to enhance the overall processes and qualities of the company. Ergo they look to reinvest the company’s profits to expand and improve.
- Shareholders on the other hand seek to increase their own profitability. Naturally, they would only look at how much they will earn.
This conflict of interest is a very common phenomenon in the business world, where businesses tend to find that equilibrium point between both sides.
Enter the world of Cryptos, and more specifically Ethereum’s sphere. Miners look to maximize their profits, whereas developers look to enhance the processes in order to reach a much fairer exchange on the blockchain. Thus we have the following similarities:
- Miners = Shareholders
- Developers = High Managers
Despite that opposition from Miners, Developers still scheduled this upgrade for July.
Mining on Ethereum was VERY Rewarding
The total mining fees in February 2021 alone surpassed USD 1.3 Billion. This definitely attracted new investors who are looking to join this mining industry either by investing in mining rigs, or by joining mining pools. A reduction in fees would definitely drive investors mad, hence those many anti-EIP1559 campaigns from mining pool companies.
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