The long-awaited London update is coming soon to the Ethereum network. On Friday, Ethereum Foundation developer Tim Beiko announced London’s testnet launch dates. On Ropsten’s first testnet, it will be activated on June 24, and a release date on the main blockchain will be set after a successful trial period.
London follows the Berlin update launched on the mainnet in April this year and includes several proposals for improving Ethereum, the most interesting of which is EIP 1559.
“EIP 1559 will bring changes to block headers, add new transaction types, ship with JSON RPC endpoints, and change customer behavior in several areas (mining, transaction collection, and so on). We strongly recommend that projects familiarize themselves with this EIP, ”Beiko wrote.
EIP 1559 also defines the minimum amount or the so-called “base commission” that a user must pay to send a transaction to the network and which changes dynamically depending on the activity and filling of blocks. EIP 1559 was proposed more than two years ago and, taking into account the interest it aroused, managed to acquire some misconceptions.
Myth one: EIP 1559 aims to reduce Ethereum fees
EIP 1559 aims to reduce fluctuations and increase the predictability of fees through an algorithmic model that maximizes cost changes by 1.125 times per block.
In the current Ehtereum auction system, the cost of sending transactions can skyrocket at one point. In EIP 1559, commissions rise and fall depending on block occupancy. If the blocks are filled above the set target, the commission increases by 12.5%, and vice versa.
It is expected that these changes will generally not lead to a decrease in commissions. The problem of high fees is primarily caused by the network’s limited transaction processing capabilities. EIP 1559 by itself does not affect the bandwidth of the blockchain.
Myth Two: EIP 1559 Will Make Ethereum’s Monetary Policy More Predictable
EIP 1559 introduces a commission burning mechanism that will permanently remove some of the coins from circulation. It was decided to burn the base fee, rather than hand it over to miners, so that they would not be tempted to artificially load the network.
EIP 1559 can increase the investment attractiveness of ether by reducing the supply. However, it is impossible to tell how much Ether will be burned over time as the base fee changes dynamically according to network activity and demand for block space.
It is believed that EIP 1559, although it acts as a counterweight to the ever-increasing supply of ether, will not make its monetary policy more stable. On the contrary, it can turn out to be a factor of economic instability, as the supply of ether will become more unpredictable.
Myth Three: Miners Attack Ethereum Due to EIP 1559
Miners are expected to lose 20% to 35% of their earnings due to EIP 1559, so some of them oppose the update in its current form and propose changes. They want to, for example, cancel base commission burn or increase block rewards.
Regardless, the activation of EIP 1559 on the Ethereum mainnet is expected in July. Miners are unlikely to try to sabotage the process, since, having disconnected from the network, they will not be able to earn even the rewards that will remain for them after the launch of London. In addition, such excitement around the cryptocurrency would most likely negatively affect the price of ether, which means, again, on the miners.
Myth four: EIP 1559 will help solve the problem of miner extractable value (MEV)
The main sources of income for miners are subsidies for adding blocks and fees paid by users. Recently, one more has been added to them – the value extracted by miners or MEV. Miners derive this value from the ability to determine the order of transactions in blocks, including outperforming the transactions of users of non-decentralized exchanges. It is estimated that the income generated by miners from such activities per day has grown from half a million dollars at the beginning of the year to $ 6 million in June.
EIP 1559 reduces the ability of miners to obtain MEV from filtering transactions for higher fees, since they will all be approximately the same, but does not affect their ability to determine the order of transactions in a block in any way.
“Transaction processing fees are only a very small fraction of the MEV market. The situation does not change at a fundamental level. There is a need for deeper protocol-level measures that we have not yet explored, ”said Philip Dayan, analyst at Flashbots.
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