Will EIP 1559 Bring Ethereum Fork Candy? Why miners will eventually choose to support it
Editor's Note: This article comes fromBabbitt Information (ID: bitcoin8btc)Editor's Note: This article comes from
Babbitt Information (ID: bitcoin8btc)
Babbitt Information (ID: bitcoin8btc)
, Author: Hasu and Georgios Konstantopoulos, Compiler: Free and Easy, Published with permission.
Note: The EIP-1559 proposal has caused huge differences of opinion in the Ethereum community, and the voice of opposition mainly comes from the miner community. In this regard, cryptocurrency researchers Hasu and Georgios Konstantopoulos have analyzed five paths that miners can choose. They think , all attempts to oppose the EIP-1559 proposal (including various forks) will have adverse effects on miners, so the best strategy for miners is to support the deployment of EIP-1559. Opinions expressed on this article are solely those of the original author.
One of the most anticipated Ethereum upgrades ever, EIP-1559 fundamentally changes the way users bid on transactions, among other benefits.
At present, the EIP-1559 proposal has received overwhelming support from the community. It is technically ready to be incorporated into Ethereum after the hard fork of Berlin (Berlin), and is currently waiting for the evaluation process of the core developers. More recently, miners have objected to this proposal, which is not surprising, since the mechanism would burn some of the transaction fees miners had previously received.
While this may seem counterintuitive, our hypothesis is that the best strategy for miners is to support the deployment of EIP-1559.
We test this hypothesis by studying the two most effective ways for miners to protest this proposal: (1) fork Ethereum, creating an altcoin without the EIP-1559 proposal, (2) by setting the basefee to zero. Blocking EIP-1559 on Ethereum.
After considering the feasibility and opportunity cost of these solutions, we found that any form of radical protest will damage the long-term income of miners more than cooperation with users.
Miners are structurally bullish on ETH and the Ethereum economy
EIP-1559 will affect the income of miners, which currently includes three sources:
A block subsidy of 2 ETH per block, and additional rewards for uncle blocks;
Fees for users to bid for inclusion of their transactions in block space (regardless of their final position in the block);
Difficult to quantify, but extremely valuable miner extractable value (MEV for short), most miners currently "outsource" this part of their income to frontrunners and arbitrage bots, who compete with each other in the mempool for these income opportunities (Note: At the same time, it also leads to an increase in network fees, thereby increasing miners' income).
After EIP-1559 is enabled, miners will continue to receive the same revenue from block subsidies and MEV. As long as the system is not congested (demand is below the maximum gas limit), the inclusion fee will be burned. When the demand exceeds the maximum gas limit, both parties to the transaction will conduct an additional first-price auction, and the final auction fee will go to the miner.
To earn these returns, miners must invest in mining hardware, power purchase agreements, and other capital expenditures. These investments make them structurally bullish on ETH and the Ethereum economy because they have to mine to earn returns.
While we do not deny that EIP-1559 has the potential to reduce one of these three revenue streams, there are still enough future revenue streams for miners to protect Ethereum and its users. Even if all basefee is burned, MEV and block subsidies will still be an important source of income for miners. Finally, the deployment of this upgrade may also mark a turning point in the demand of Ethereum users, ultimately promoting the growth of Ethereum's overall economy.
Users are Ethereum's economy
To understand the dynamics of Ethereum, it is important to understand that all three revenue streams come from users and the applications and businesses that serve them.
Users create demand for ETH, which is then sold by miners for fiat and other tokens in the Ethereum ecosystem. Congestion charges will be generated for users' needs for transfer, transaction, and loan. Finally, their use of DeFi applications, such as decentralized exchanges (DEX), creates MEV and other opportunities for miners in the form of price arbitrage.
Users are the economy of Ethereum, and miners provide them with services in the form of network security. This is a business relationship — miners provide this service not out of good intentions, but in response to the economic incentives users create for them.
Users have no moral (or other) obligation to pay miners more than is necessary to secure Ethereum, and certainly miners have no moral (or other) obligation to continue mining when it is not profitable.
Ultimately, the power dynamic between users and miners can be explained by fungibility. It is almost impossible for miners to replace the current Ethereum users as their main source of income, but it is very likely that users will replace some, or even most of the current Ethereum miners.
After establishing this basic relationship between miners and users, we will apply this framework to various scenarios activated by EIP-1559.
Scenario 1: Miners maintain old chains without EIP-1559
We mention this only for completeness, as in many other blockchains, upgrading faces an inherently uphill battle. This is because it is generally cheaper for users to stay on the existing blockchain without doing anything, and thus make it easier to block new proposals from passing. This cannot happen in the case of Ethereum due to the difficulty bomb. In short, without a hard fork to reset the difficulty bomb, mining difficulty will increase until the Ethereum network itself grinds to a halt. This makes it impossible to stay on the old chain, any EIP-1559 counterparty will use the same cost to hard fork, at least to dismantle the difficulty bomb.
Scenario 2: Miners create an altcoin and replicate the state of Ethereum
A more viable proposal is that miners simply fork Ethereum and create their own altcoins (similar to ETC, or BCH, which was forked from Bitcoin). Whether it makes sense to fork depends on the opportunity cost of doing so
. In the case of EIP-1559, miners had to decide between mining a new competing chain or the existing Ethereum chain.
This opportunity cost is no joke, because as we mentioned before, in order to pay miners any revenue, the blockchain first needs to generate value for users in order to obtain valuable block subsidies, congestion fees, and MEV. Bitcoin and Ethereum have been forked dozens (if not hundreds) of times, but most of the forks never gained any user favor.
Building that kind of traction is much easier when you can also fork the state of a blockchain, which all successful forks have done in the past. In Bitcoin, the state is simply a list of coin ownership. BCH forked this list to take advantage of Bitcoin’s existing supply distribution and airdrop new coins to all BTC holders.
But the state of Ethereum is more complex, encompassing not only the issuance of ETH, but thousands of different tokens, smart contracts, applications, and more. These things can also be replicated with a fork, but they are just skeletons on another chain. 。
For example, many of the big coins on Ethereum, such as stablecoins or WBTC, are claims on some real-world asset. The fork cannot actually replicate these assets, and the tokens will continue to run on the EIP-1559 Ethereum blockchain, but have no value on the forked chain.
As a result, the rest of the collateral-dependent Defi applications on the forked chain also lose their meaning, such as the collateral-backed stablecoin DAI or any form of AMM pool. In short, everything except ETH, including important off-chain infrastructure such as oracles, liquidation bots, etc., will explode and cause huge chaos on the forked chain.
While ETC was able to fork from Ethereum in 2016, a similar event is no longer possible today. The emergence of tokenized assets and Defi makes the state of Ethereum unforkable
Scenario 3: Miner creates altcoin with new state
If the state of Ethereum cannot be forked, what about an altcoin that only copies the secure elements of the state of Ethereum (e.g. the distribution of ETH) and starts from a fresh state?
This is much more feasible than Scenario 2, as demonstrated by other "stateless" forks of Ethereum such as Tron and more recently Binance Smart Chain (BSC). The success of the latter, in particular, demonstrates the immense value of leveraging Ethereum’s virtual machine (EVM), existing wallet infrastructure (such as Metamask), and developer tools. Additionally, while dapps are not automatically replicated, their deployment is straightforward and new assets can be issued at a later date.
Given the rapid success of BSC, will there be market demand for a "permissionless" version that uses PoW mining instead of a centralized operator? The new blockchain could even increase the gas limit to target users who are currently unable to use Ethereum due to high gas prices.
But on further reflection, this approach is also fraught with problems, and the problems revolve around the distribution of supply.
If the new chain decides to reset the supply allocation of ETH, and start from 0, it will lose the existing supply allocation. Bootstrapping new supply allocations will require years of high inflation, making the asset less attractive. In contrast, BSC does not have this problem because Binance is the only block producer and does not require additional mining incentives.
However, if the new chain replicates the distribution of ETH, then a lot of the new ETH will be in the hands of potentially hostile users who may use the coins for a long time to drive down the price. This would render any block rewards for miners on the new chain worthless, and show that even a "stateless" fork requires a certain amount of support from existing users.
Scenario 4: Miner joins new chain, but blocks EIP-1559
As we have already analyzed, any attempt to create an altcoin is basically doomed to failure. This leaves another possibility, which is currently the most discussed among miners. In this case, the miner will join the new blockchain with the user, but then suppress the EIP-1559 mechanism from burning any ETH by controlling the basefee to 0.
The method works as follows: The EIP-1559 controller determines the basefee for the next block by observing the size of the previous block. If the previous block exceeds the target gas limit (50% of the maximum gas limit), the basefee will be increased to limit transaction demand. If below the target gas limit, the basefee will be reduced to encourage demand.
Miners can technically control how many transactions they include, and thus the block size, and thus the basefee. If a miner only mines less than half-full blocks, the basefee will never increase above zero, so no fees will be burned. However, competition among different miners makes this strategy impossible in practice.
First, assuming a mining pool with 5% of the hash power tries to implement this strategy, it will only mine half-full or smaller blocks (even if demand far exceeds this level). At the same time, the other 95% of the computing power will mine larger blocks and earn more income from fees, and the basefee will increase anyway. The mining pool that controls 5% of the computing power will soon realize that it is suffering losses, and either choose to give up or lose computing power. This suggests that selfish miners want to include as many transactions as possible, as long as there is competition among them.
What would happen if there was less competition? Imagine, for example, that 60% of miners would agree to implement this strategy. The result is the same, because for every half-full block mined by 60% of the cartel miners, the remaining 40% miners will mine full blocks and get all the extra revenue from congestion fees and MEV, In this way, the basefee will still increase over time. Therefore, in this case, we call it an unstable alliance.
This strategy only works if hostile miners can find a way to eliminate competition so that others cannot mine large blocks. Once they have 60% of the computing power, they can do this by implementing what is called a Miner Activated Soft Fork (MASF). Such a miner-activated soft fork (MASF) would dictate that blocks more than half-full are invalid, so 60% of miners should ignore them. Now, 40% of miners can still technically mine larger blocks, but 60% will refuse to continue mining on top of these blocks, so all transaction and block rewards distributed by the minority cartel will all evaporate. 。
Now, you have to understand that Miner Activated Soft Forks (MASF) are nothing new. Today, miners can already form such cartels, for example by limiting gas limits to raise fees, charging higher fees for large transactions, or setting a price floor. All of these strategies may seem more profitable at first, but miners have good reasons not to try to implement them.
First, they require the cooperation of many distrusting parties, which is difficult to achieve. But more importantly, MASF will be an unprecedented attack on the Ethereum network and its users. This will not only destabilize the network at the consensus level, but also undermine users' trust in Ethereum. This already threatens future mining revenues, but users can also be more active in opposing such censorship. For example, we want users to start broadcasting their transactions directly to friendly mining pools to deduct fees and MEV from the review pool.
In summary, basefee manipulation is not a stable equilibrium for miners who do not implement MASF. But if miners do implement MASF, it will be an unprecedented self-destructive attack on Ethereum, and of course their own investments
Scenario 5: Miners join the new chain and successfully implement EIP-1559
Given the poor results for miners in Scenarios 1-4, we are sure that their main option is to simply cooperate with users.
Even if miners make less money on this new chain (not necessarily), it's still a lot more money than trying to create an altcoin. Any such altcoin will have close to zero value relative to ETH, will not generate transaction fees due to congestion, and will not generate MEV due to Defi arbitrage opportunities.
Furthermore, implementing MASF to suppress the basefee would be an unprecedented transparent attack on Ethereum and its users. We've never seen this attack in a real-world situation, and for good reason. It may destroy the confidence of users and the value of ETH, as well as the economic activities taking place in the system, thus directly harming the interests of miners.
possible concession
In addition to the 5 scenarios discussed above, we also discussed the different concessions that users may make to appease miners, the main ones are as follows:
EIP-969: Change Ethereum’s PoW algorithm to exclude ASIC miners from the network;
in conclusion
Instead of burning the basefee, for example, distribute it to the miners of the next N blocks;
However, we emphasize again that it is already in the best interests of miners to cooperate with users to upgrade. Therefore, users do not need to satisfy the needs of miners, nor do they need to make any further concessions to them.
in conclusion
1. There are other huge costs involved in bringing a new blockchain to market.http://timroughgarden.org/papers/eip1559.pdf
reference link
2. We strongly recommend you to read "Ethereum is now non-forkable due to DeFi" by Haseeb Qureshi. His article lays out in great detail what would happen if someone tried to fork the state of Ethereum, concluding that this is completely impossible today.
3. For a formal analysis of the same argument, see Sections 6.2 and 7 of Tim Roughgarden's analysis,
reference link
