EIP-1559 Delivers What it Promises, But it’s Not Solving Gas Fees Problem
Highly anticipated EIP 1559 is getting closer and closer to its implementation as each day passes. While London hard fork upgrade in mid-July is still a month and a half away, it is all the Ethereum community can talk about.
The reason for EIP-1559’s popularity is the new narrative it gives to Ethereum – an “ultrasound money,” according to ETH enthusiasts.
This Ethereum Investment Proposal will basically burn a portion of the fees that are paid in ETH hence removing those ETH from circulation. Given that the Ethereum network is the biggest fee earner in the crypto space, currently generating over $9 million a day, the pace at which the gas will be burned will effectively be faster than at which ETH is mined.
This will reportedly make Ether a deflationary asset, hence, sending the prices higher. However, if you were expecting this proposal to bring down the extremely high fees on the network, then you won't be getting a reprieve.
EIP 1559 is not about solving the gas problems and tip aka priority fee estimation is as complex as gas price estimation today which Georgios Konstantopoulos, a researcher at Paradigm, noted is true as it fundamentally, still follows the first-price auction.
EIP-1559 was never about solving gas fees, its about creating monetary policy on ETH by adding deflatory properties, to solve gas fees you need to take loads of computation out of L1 to elsewhere
— stani.eth 👻 =(⬤_⬤)= 👻 (@StaniKulechov) May 28, 2021
Instead of relying on oracles for the correct price, “under 1559, basefee is an *objective* measure of congestion, which catches up quickly to the true equilibrium price, bursting bubbles sooner, which means bidding wars are necessarily short-lived,” said Barnabé Monnot, a researcher at Ethereum Foundation.
Meanwhile, James Hancock, project team lead at EthSignals explained that EIP-1559 basically reduces the overpaying transaction fees, which is different than simply reducing fees. He added,
“Inefficiently priced transactions mean you pay more than you should (based on market demand). We shouldn't pay more than we should.”
Full blocks will be rare. Full blocks in a row will be really really rare!
I diagramed to scale what a worst-case scenario would look like. One line is one block.
5 minutes of full blocks (old auction style) resumes, then blocks will no longer be full. 👍 pic.twitter.com/c6RR7LNbXe
— James Hancock 🏗 (@JHancock) May 27, 2021
While some don’t believe that the upgrade delivers, Konstantopoulos, along with researcher Hasu in their detailed write-up on derivatives platform Deribit, said it “largely holds what it promises.”
“It should make fee estimation much more predictable except for very short periods of high congestion…Its ability to set minimum fees in the protocol opens a new design space, ranging from elastic blocksize, perpetual block subsidy, better resistance against economic abstraction, to better auction models going forward.”
Amidst all this, during the latest Ethereum core developers meeting, MH Swende identified an issue in EIP 1559 where, as Tim Beiko, who coordinates the developer work on the second-largest network for the Ethereum Foundation shared on Twitter, “the new fields introduced in transactions (maxFee & maxPriorityFee) did not have an explicit cap.”
This meant that an attacker could create arbitrarily large transactions which prior to this EIP wasn’t possible, to create a transaction with a huge gas price as one actually needed to have that amount of ETH and if the transaction is included, the amount has to be paid. He said,
“Because the fields in 1559 are maximums, you could abuse this, not actually pay those huge gas values, and spam the network.”
However, the fix is simple which includes adding four checks to EIP-1559: the first two check that the maxFee and maxPriorityFee are < 2^256, the third checks that the maxFee is larger or equal than the maxPriorityFee, and lastly, it is checked that a transaction sender's balance is larger than their maxFee times their gas used.