EIP-1559 will not lower Ethereum’s high fees alone

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EIP-1559 Won't Lower Ethereum's High Fees Alone - Professor 101
Source: Adobe / grejak

Among many of the much discussed Ethereum (ETH) related events recently is the arrival of a particular Ethereum Enhancement Proposal (EIP) which is supposed to help reduce fees, but high fees are a scalability, not an issue of mechanism, says one expert.

EIP-1559 is expected to introduce an automatic token burning mechanism for each transaction and an improved commission market, and has been highly anticipated by the ETH community and Cryptoverse in general.

“No transaction fee mechanism, EIP-1559 or otherwise, will substantially reduce average transaction fees; consistently high transaction fees are a scalability issue, not a mechanism design issue,” he wrote Tim Roughgarden, an American computer scientist and computer science professor at Columbia University.

In his recent analysis of this proposal, Roughgarden states that Ethereum now uses a first price auction commission mechanism: each transaction is accompanied by an offer, corresponding to the gas limit multiplied by the price of the gas, which is transferred from its creator to the miner of the block that includes it. With this EIP, it would have changed to a base rate: Each transaction included in a block must pay that block’s base rate (per unit of gas), and this payment is burned rather than passed on to the block miner. The block size is also variable and the base rate is adjusted after each block.

He goes on to say that real transaction fees cannot be expected to drop significantly below the market clearing price during a period of relatively stable demand, regardless of the mechanism. “With commissions below that price, the demand for gas would exceed supply, with the result that some lower value transactions replace higher value transactions.” And if the market clearing price is already extremely high, the only ways to lower it are to increase supply or decrease demand – “stocks that are generally outside the purview of mechanism design.”

According to Roughgarden:

  • Layer-1 scaling solutions such as sharding, in which different parts of the blockchain operate in parallel, increase transaction throughput and thus reduce the market clearing price;
  • Layer-2 scaling solutions such as payment channels and rollups, which move some transactions off-chain, reduce the demand for Ethereum virtual machine (EVM) computation, and decrease the market clearing price.

Level 1 is the basic protocol (the Ethereum blockchain), while level 2 is any protocol built on Ethereum.

“Looking forward, good scaling solutions will be crucial to keep transaction fees in check and more generally to encourage the growth of the Ethereum network,” said Roughgarden.

EIP-1559 Won't Lower Ethereum's High Fees Alone - Professor 102
Source: bitinfocharts.com

Ethereum just launched the long awaited first phase of Ethereum 2.0 yesterday, which will ultimately lead to both sharding and rollups which should allow for more transactions in less time with lower fees. The launch was considered a success. The next day, the participation of the validator is even higher than c. 85% seen at launch, rising to 96%, what the developers were hoping to see.

Risk, advantages and disinterest of Bitcoiners

That said, what this EIP is supposed to do, Roughgarden said, is:

  • decrease the variance of transaction fees and the delays that some users experience, thanks to the flexibility of blocks of variable size;
  • improve the user experience through easy rate estimation, in the form of an “obvious best offer”, outside of periods of rapid growth in demand;
  • at least modestly reduce the ETH inflation rate by burning the transaction fees.

As previously stated, analysts, developers and researchers have argued that this proposal would improve the commission market and make commission estimates more predictable.

As for the main potential risks of implementing this proposal, Roughgarden said, they include implementation errors, a fork caused by some parties rejecting the change, extra complexity at the consensus level, a hostile reception from miners, and a coordinated response as well as a new, albeit expensive attack vector enabled by blocks of varying sizes. The professor also criticized the basic rate update rule, calling it “arbitrary” and as something that should be adjusted over time.

The professor added that “[r]easier people will disagree that the benefits of EIP-1559 justify the risks of adopting it. Those who adhere to the “why fix what isn’t (too) broken” philosophy may prefer to stick with the status quo. For those who believe that consensus-level innovation must continue to be a central part of Ethereum’s future, however, the arguments in favor of EIP-1559 are strong. “

As previously reported, Anthony Sassano, SetProtocol the head of product marketing, said in August of this year that EIP-1559 – “the biggest and most complex change to Ethereum since it was first published” – could be released “maybe (maybe big) within the next 6-12 months “.

Meanwhile, Eric Wall, Chief Investment Officer of the cryptocurrency hedge fund group Arcane Resources, commented that Bitcoiners’ disinterest in this EIP will prove beneficial to Ethereum if its implementation is successful.

“I think Ethereans’ line of argument will resonate well with some nocoiners, and when those nocoiners bring those arguments back to the Bitcoiners and find that hardly any Bitcoiners have bothered to figure out the details, they will play in Ethereum’s favor,” Wall said.

At 9:25 UTC, ETH is trading at USD 598. It fell 2.3% in one day and was unchanged in a week.

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