EIP 1559 has been uploaded to the GitHub open-source platform by the Ethereum developers since April 13, 2019, and being in the reviewing process. However, they have recently decided to integrate EIP 1559 into the hard fork upgrade by this July. This will be good news for the ETH community due to its improvement in the gas fee system. But what are EIP 1559 upgrades and how does it affect the market? This article will help you answer the questions right away!
So, what is EIP 1559?
In the last article at Tokenize Blog, we explained Taproot – the upcoming Bitcoin upgrade, today we came to an important upgrade of Ethereum. EIP-1559, standing for “Ethereum Improvement Proposal” is an updated proposal to fix numerous current issues in fee models and improve overall user experience by using a hybrid system of base fees. EIP 1559 will come up with the following changes:
Basefee and tip
Users traditionally send a gas fee to the miner as a transaction fee that is included in a block. The miners are incentivized to accept the transaction by choosing the highest gas price, leading to users’ overpaying the transaction due to the auction mechanism.
EIP 1559 will implement a new concept named Basefee. The Basefee represents the algorithmically determined price paid by a transaction. While the Basefee are included in a block and burnt later, tips are optional fees that users can pay directly to the minder to incentivize them to speed up the transaction.
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The current maximum gas per block is 12.5 million. After EIP 1559 is implemented, the maximum gas limit will be raised to 25 million, basically doubling the block size.
Why EIP 1559 is good news for users?
EIP implementation is expected to optimize some current issues like transaction fee volatility, the inefficiency of the first-price auction, and blockchain instability. Meanwhile, it reduces the transaction fee and improves user experience by:
- Make transaction fee more predictable
- Reduce transaction confirmation delay
- Smooth Ethereum gas fee
The effect of EIP 1559
The most significant feature in this upcoming Ethereum upgrade is the effect on ETH’s supply. The basefee after paid and put in a block will be burnt as more transactions occur. This can be seen as good news for users since the fee burn will reduce ETH circulating supply and prevent the future inflation of ETH though it is uncertain that Ethereum will be inflated.
Though getting good responses from users, EIP 1559 gets objections from a great number of miners and mining pools. Since 40% of the miner’s profit comes from the transaction fees which will be reduced due to EIP 1559, the tips may not be enough for them. However, it will not stop ETH developers from implementing the upgrade this July.
Keep following Tokenize Exchange for more updates on Ethereum EIP 1559 upgrades and other cryptocurrencies!
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