Coinmetrics: EIP-1559 won’t tackle ETH fee usury
Ethereum suffers from chronic extortionate fees. Can EIP-1559 finally remedy the situation? Coinmetrics and the creator of the ERC-20 standard are sceptical.
The fact that Ethereum has a fee problem is by no means new. Back in December 2017, a single dApp managed to push the network to its capacity limit: CryptoKitties, the pioneer in NFT. Since the burgeoning of decentralised financial services (DeFi), the gas-fee problem has become even more acute. This is because with DeFi came increasingly complex smart Bitcoin Revolution contracts vying for space in Ethereum blocks. Ethereum’s current fee model resembles an auction: those who want to pay more gas fees have a better chance of getting their transaction into a block quickly. As a result, the fees all too often balloon to heights that make Ethereum-based DeFi applications a costly affair, especially for smaller wallets. Especially when exchanging ERC-20 tokens via decentralised exchanges like Uniswap, the fees can quickly exceed the value of the transferred assets.
In the long term, Ethereum 2.0 is supposed to remedy the situation with its scaling solutions – in the short term, the hopes of many Ethereum users rest on EIP-1559, a proposal to modify the fee model on Ethereum.
What is EIP-1599?
Ethereum Improvement Proposal No. 1559 proposes to replace the current auction-like model with a base fee + tip for miners. In addition, the block size is doubled because EIP-1559 raises the gas limit (the maximum amount of gas fees per block) from 12.5 to 25 million units. At the same time, the blocks are to be utilised at an average of 50 per cent. Block utilisation is regulated automatically via the base fee, which varies the network utilisation. If a block is less than 50 percent occupied, the gas price drops – and vice versa. In this way, Ethereum should be able to cope better with peaks in utilisation.
Coinmetrics: EIP-1559 will hardly solve Ethereum’s fee problem
The blockchain analysts at Coinmetrics have now looked into Ethereum’s fee problem. In the „Ethereum Gas Report“, Coinmetrics also looks at the impact that EIP-1559 could have on Ethereum fees. The experts‘ conclusion is ambivalent.
Thus, EIP-1599 could only make a limited contribution to lower fees in Ethereum. For one thing, it could happen that when the block is fully utilised, the miner tip becomes the decisive factor for whether a transaction ends up in a block. The situation would then be comparable to today’s gas mechanism. Moreover, even raising the gas fee limit could not guarantee that the blocks would not be fully utilised.
This leads Coinmetrics to conclude that EIP-1559 alone cannot solve Ethereum’s fee problem.
Will EIP-1559 fix today’s high gas prices and make Ethereum transaction fees significantly cheaper? The short answer is: probably not.
Ultimately, it would come down to Ethereum itself becoming more scalable. Coinmetrics points to second-layer solutions like Optimism and Loopring as well as – in perspective – Ethereum 2.0.