6-Who benefits from EIP-1559?
On August 5, 2021, the eleventh hard fork, Ethereum London, upgrade was activated at block number 12,965,000, marking one of the most important events for the chain in recent years. The first block of the upgrade burned 0.030025257 Ether, making it a historic moment.
Block #12965000 Data source:Etherscan
The London upgrade includes five EIPs (Ethereum Improvement Proposals), namely EIP-1559, EIP-3198, EIP-3529, EIP-3541 and EIP-3554, of which the most attention has been focused on EIP-1559, which makes a revolutionary change to the transaction fee system of Ethereum.
Although EIP-1559 was proposed back in April 2019, it did not finally land until the London upgrade in 2021, mainly due to the different parties' interests.
Before the upgrade:
Transactions on Ethereum adopt an auction model. Due to the asymmetry of information, users cannot predict how much they need to pay to have their transactions processed immediately, so they may pay higher transaction fees. While miners, whose revenue comes from the Gas fees paid in user transactions as well as block reward and uncles reward, tend to give priority to transactions that pay higher Gas fees.
When Ethereum becomes congested, the Gas fee paid by users rises even higher. With the continuous development of the protocol, the high and volatile Gas fees on Ethereum and inefficiency of transactions discouraged many users, who turned to other protocols like BSC.
After the upgrade:
EIP-1559 essentially seeks to optimize the pre-upgrade issues in two ways:
  1. 1.
    Fee allocation mechanism
EIP-1559 divides the previous lump transaction fee to miners (also known as Gas Fee) into two parts:
  • Base fee (aka Burnt fee) The base fee is calculated based on both the base fee of the previous block and the block utilization, and is a must-paid fee that users cannot adjust. When the utilization of the previous block is higher than 50%, the base fee will rise; on the contrary, the fee will fall. This part of the fee has introduced a controversial mechanism called the burnt mechanism, which will change the currency policy of ETH.
  • Priority fee Paid optionally by the user, the fee is paid directly to the miner, and the same high amount can be set to attract miners for users who want to speed up transactions. However, when trading peaks, the act of facilitating transactions by constantly increasing the priority fee seems to return to the pre-upgrade auction model, only with a more predictable base fee after the upgrade.
  1. 1.
    Slack mechanism of blocks
In the face of a sudden surge in demand for transactions, EIP-1559 allows for variable block sizes, a target Gas usage of 50% of the top line of Gas, and a base fee that rises when it rises, these mechanisms allow for smoother Gas prices.
Who benefits from the EIP-1559 upgrade?
EIP-1559 has received a lot of discussion since its launch, and Ethereum has gained unprecedented attention as a result. For this upgrade, there are a lot of voices from all sides and various analyses.
Below is a detailed analysis of the performance in terms of Ethereum Gas fees after the London upgrade, using data from Footprint (you can find detailed data by clicking here).
Gas Fee VS Burnt Fee(since Jun 2021) Data source:Footprint
Before the upgrade, many said that Gas fees would decrease. But, according to Footprint data, the daily total Gas fee paid by users after the upgrade is about 5600 ETH, and the base fee burned is about 4,100 ETH, which is not significantly lower than the 2 months before the upgrade. Rather, it indicates a slight upward trend, and the base fee is instead closer to the pre-upgrade Gas fee, but users have to pay an additional priority fee on top of that.
Avg of Gas Price VS Avg of Base Fee Per Gas(since Jun 2021) Data source:Footprint
From the Footprint data, the uptrend of average Gas price and base fee per Gas after upgrade implies that the number of transactions is not the only factor affecting the total transaction fee.
Therefore, from the current data, EIP-1559 does not make the Gas fee lower, but rather increases it. If the ETH price rises, the actual fee paid by users will further increase, but the change of Gas fee after the upgrade does seem to have stabilized.
Avg of Gas Price VS Avg of Base Fee Per Gas (hour-of-day)(After London Upgrade) Data source:Footprint
Although the Gas fee is not significantly lower, it seems from the data that users can try to avoid peak hours. Generally, 19:00 (UTC+0) is peak transaction time, with the price at its highest point.
For users, all the data indicates that there is no reduction in transaction fees.
How does that affect miners?
Gas Fee VS Priority Fee(since Jun 2021) Data source:Footprint
After the upgrade, the only revenue miners will receive directly from users, in addition to the rewards given by the blocks, will be the priority fee.
Although the priority fee represents a small portion of the total transaction fees paid by users, data from Footprint shows that the total daily miners' earnings are not much lower compared to the total earnings before the upgrade. As of August 23rd, the average gas fee was 0.94ETH per block, of which 0.69ETH of the base fee was burned. Miners will receive 0.25ETH of the priority fee.
Burnt Fee VS Priority Fee(After London Upgrade) Data source:Footprint
In the view of the ratio of base fee and priority fee, about 20% of the current transaction fees are paid to miners by users as priority fee, which also means that 80% of each transaction will be burned.
At the time of writing, about 77,268 ETH have been burned, and an average of 3.96ETH will be burned every minute for nearly 24 hours. Such an amazing amount of ETH burn in less than a month is bound to curb ETH inflation to a certain extent, thus stimulating the ETH's price to rise. It is worth noting that the top three projects that have burned the most base fees are OpenSea, Uniswap and Axie Infinity, in that order.
The token price of ETH(since Feb 2021) Data source:Footprint
In the end, let's view the current token price of ETH, as of press day the price is $3,217, currently looking at the overall trend from the upgrade is still up, combined with the above data to see that the daily priority fee for miners has not fallen more significantly, miners' earnings in the long run will not necessarily be affected. For the hodlers of ETH, the result is positive, but from the user's point of view, not so much. The upgrade does not look to have successfully reduced transaction fees, but a slight increase, coupled with the burned scheme makes the ETH token price rise—a double burden for users using Ethereum. Footprint Website:https://www.footprint.network/
Discord:https://discord.gg/3HYaR6USM7 Footprint is a powerful yet easy-to-use analytics tool to uncover and visualize blockchain data. The product puts user experience first—whether you’re an analyst, data scientist, developer, student, teacher, or executive. It provides an intuitive, drag-and-drop interface for interactive data queries.
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