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Ethereum: Important fee update ‘EIP-1559‘ scheduled for July

While users and investors rejoice in this report that EIP-1559 is scheduled for July, ETH miners are not quite as thrilled. Nonetheless, that did not prevent developers from planning this update.

The highly anticipated upgrade to the Ethereum network is expected to affect transaction fees. Ethereum could thus become a deflationary asset. In July 2021, Ethereum is scheduled for a hardfork called London.

"I guess we are in the right position to be prepared for the upgrade." Tim Beiko, ETH's chief developer.

The proposal, co-authored by Ethereum co-founder Vitalik Buterin, is said to transform the fee structure and change 2 important things.

Transaction fees will not go to the miners now but will be burned instead, creating ETH token deflation. After the introduction of EIP-1559, only voluntary "tips" from users who entered the transaction will go to the miners. The “burned fee” is determined algorithmically, which should make it easier for users to pay a fee that is fair.

Transaction fees are standardized for the entire network and their amount is adjusted according to the current network load. The question remains whether this will work once the upgrade is implemented.

Ethereum: Important fee update ‘EIP-1559‘ scheduled for July Figure 1: Ethereum is scheduled for important fee update ‘EIP-1559‘ in July

Ethereum mining as a golden opportunity

Lately, Ethereum mining has been a very interesting opportunity. According to Coin Metrics, mining revenues exceeded a record of a staggering $ 1.3 billion in February, with 50% coming from fees alone. The increase in price and transaction fees has led to an increase in hash power, which has more than doubled since last year.

Recent research has revealed that EIP-1559 could burn 1 million Ether in one year, which represents almost 1% of the whole network. Inflation-reduced ethereum will also gain a deflationary element that could become attractive to both new and existing investors.

Supporters and critics

Everything has its pros and cons and the same goes for EIP-1559. This proposal is highly supported by developers on one side with miners on the other, criticizing the fact that they will lose a substantial amount of money. There were threats of a hard fork, with estimated losses ranging up to 50%. Eventually, these threats passed, hopefully leaving these pointless mining practices in the past.

Ethereum mining pool Flexpool has launched a marketing campaign against EIP-1559. Several smaller pools joined, supported by larger pools such as Bitfly and Sparkpool. This made up over 60% of the hashing force going against the EIP-1559 design. The third-largest pool, F2Pool (11.4%), expressed support for this proposal despite the fact that it will mean a record loss in its income.

A recent Grayscale study identified the EIP-1559 as an important upgrade with great potential for increasing ETH.

Jakub is a crypto trader and founder of Trader 2.0 project, which helps hundreds of traders from central Europe to understand cryptocurrency trading and its challenges. Jakub not o...

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