Guosheng Blockchain | Ethereum 1559 Proposal: Rebalancing the Interests of Miners, Token Holders and the Community

Editor's Note: This article comes from

Jishi Communication (ID: SJJ_Telecom)

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Risk warning: Uncertainty in regulatory policies, blockchain infrastructure development is not up to expectations.

Summary

The EIP-1559 proposal of Ethereum caused more than half of the mining pools to oppose it. How to promote fee reduction and speed up is the most urgent task for Ethereum. With the rise of ecology such as DeFi, the transfer fee on the Ethereum chain (expressed as Gas price) continues to rise. Excessive gas fees have brought great restrictions to the ecological application experience, which is bound to have a crowding out effect on the ecology, but it is beneficial to miners. In order to improve the ecological application experience, the EIP-1559 scheme proposed by V God, the soul of Ethereum, the core of this scheme is to change the way of paying gas fees to miners. Gas fees will be divided into two parts: basic fee and tip (tip), The base fee will be destroyed. Since the destruction of the base fee (Basefee) will reduce the circulation, it will benefit the holders and the community, but it will reduce the block rewards of the Ethereum miners. In the past week, the mining pool with more than half of the computing power clearly expressed its opposition to EIP-1559, and Ethereum once again faced a rebalancing situation between the interests of miners and the community (including token holders).

We believe that the core problem facing Ethereum at present is the rebalancing of the interests of miners (due to the current PoW mechanism, this effect is more obvious), the community and token holders. Excessively high currency prices and high Gas fees will of course have a crowding out effect on community projects, but low currency prices will definitely be detrimental to currency holders and miners, and will eventually be detrimental to the development of the community. The relationship between these three is similar to the impossible triangle, which cannot be solved perfectly, and can only be dynamically adjusted continuously to achieve a balance. On a deeper level, there is room for optimization in Ethereum’s Gas fee calculation method. The 1559 proposal this time is obviously beneficial to the currency holders, but the way of destroying the base fee is also conducive to pushing up the currency price, and the currency price is positively correlated with the Gas fee as a whole, which will eventually cause a crowding out effect on the community. According to the plan of Ethereum 2.0, it will eventually turn to the PoS mechanism, and the current PoW miners will eventually be eliminated. Before the advent of Ethereum 2.0, in the face of the relationship between high Gas fees, currency holders' demands for currency prices, and the continuity of community project innovation, V God has considerable expectations for Layer2 and other transitional solutions, while external Competitors such as Polkadot, BSC, and HECO will surely take the opportunity to compete for the traffic of Ethereum. Of course, these projects and Ethereum are not completely competitive, and there is a certain degree of integration. How to create a new ecological balance by taking advantage of the continuously active innovation capabilities of the Ethereum community is a problem and an opportunity for the entire industry.

Risk warning: Uncertainty in regulatory policies, blockchain infrastructure development is not up to expectations.

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1. The Ethereum 1559 Proposal Caused Differences in the Interests of Miners, Token Holders, and the Community

The EIP-1559 proposal of Ethereum caused more than half of the mining pools to oppose it. How to promote fee reduction and speed up is the most urgent task for Ethereum. With the rise of DeFi and other ecosystems, the transfer fee on the Ethereum chain (expressed as Gas price) continues to rise. In the past week, the Gas Fee reached a record high of 1220 Gwei. Excessive gas fees have brought great restrictions to the ecological application experience, which is bound to have a crowding out effect on the ecology. In the past few weeks, many projects have migrated from Ethereum to BSC and HECO, which have lower costs and better experience. The soaring gas fee has greatly increased the income of Ethereum miners. According to incomplete statistics from The Block, since February this year, the income of Ethereum miners has exceeded 1 billion US dollars, setting a new high, of which the income in the form of transaction fees is 541 million US dollars. It accounts for more than half of miners' income. In order to improve the ecological application experience, V God, the soul of Ethereum, proposed the EIP-1559 solution, which aims to solve the problems of high gas fees and network congestion for Ethereum users, but at the same time violates the interests of miners. They publicly expressed their opposition. The core of EIP-1559 is to change the way to pay gas fees to miners. At present, miners package transactions mainly by selecting transactions with higher gas fees in the Mempool (transaction memory pool) for packaging. In the EIP-1559 proposal, the gas fee will be divided into two parts: base fee and tip. The base fee is the minimum price a user must pay in order to have their transaction included in a block. If the EIP-1559 proposal is passed, the base fee will be destroyed. If the gas fee contained in the block exceeds the limit of 12.5M, the block will increase the limit, and the final upper limit of the gas fee is 25M. Tips can be considered as an additional reward for miners. Once the gas fee reaches the final upper limit of 25M, miners can sort and package according to the level of tips, similar to the current first price package. The EIP-1559 proposal adjusts the gas fee rate according to the actual usage demand, so as to ensure that the utilization rate of the block is maintained at a half-full state, and dynamically adjusts the upper limit of the gas fee to better cope with short-term demand peaks , to avoid network congestion caused by strong demand, thereby improving user experience. Since the destruction of the base fee (Basefee) will reduce the circulation, it will benefit the holders and the community, but it will reduce the block rewards of the Ethereum miners. The increase in income caused by burning is often unable to offset the reward of miners' handling fees, so the final income of miners is reduced, which is the fundamental reason why miners collectively oppose the EIP-1559 proposal. In the past week, the mining pool with more than half of the computing power clearly expressed its opposition to EIP-1559, and Ethereum once again faced a rebalancing situation between the interests of miners and the community (including token holders).

Coinbase is about to go public, with a valuation of hundreds of billions of dollars, and encrypted currency assets will continue to triumph in the capital market. The cryptocurrency exchange Coinbase announced that it has officially submitted the S-1 registration form to the US Securities and Exchange Commission, landed on the capital market in the form of DPO (direct listing), and announced that it will list its Class A common stock on the Nasdaq Global Select Market Listed, the stock code is "COIN". According to information from The Block, in the Nasdaq Private Market (NPM), the latest liquidation price of Coinbase reached USD 373 per share, and the corresponding valuation of Coinbase was 100 billion. According to the S-1 form, the net profit of Coinbase last year was about 322 million US dollars, corresponding to a price-earnings ratio of about 300 times. The major event of the last bull market was the launch of Bitcoin futures on the Chicago Mercantile Exchange (CME). We believe that encrypted currency assets will continue to "overcome obstacles" in the capital market at a very fast speed until they become a market that cannot be ignored in the capital market.

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2. News related to governments of various countries: The Indian central bank is actively investing and intends to launch a central bank digital currency

South Korea: The governor of the Bank of Korea said that CBDC has great potential if done correctly. The Bank of Korea has said it will test a central bank digital currency (CBDC) in a virtual environment within this year. While Bank of Korea Governor Lee Ju-yeol is not bullish on Bitcoin, he believes that the Bank of Korea Digital Currency (CBDC) has great potential if done correctly. Earlier, Lee Ju-yeol told the National Assembly's Strategy and Finance Committee meeting on Tuesday that the CBDC trial plan will be revised and promised to improve institutional and technical research.

Thailand: The Thai SEC will hold a hearing on the entry rules for encrypted retail investors on March 24. Officials are currently seeking public comments on the proposed new entry rules for crypto investors, and the public consultation will continue until March 27. According to the previously announced proposed consultation document, the SEC will assess what entry conditions should be imposed on retail investors who open new cryptocurrency trading accounts, including the net assets and annual income of encrypted investors, as well as trading experience.

India: The Indian central bank is actively investing in and intends to launch a central bank digital currency. The RBI is actively investing and planning to launch a central bank digital currency to replace privately issued cryptocurrencies. RBI Governor Shaktikanta Das said the central bank is "very committed" to launching a digital currency and hopes to emulate China's digital currency project, the digital yuan. It also revealed that the digital rupee project is the main focus of the central bank. Das said that while the proposed CBDC does not yet have an official launch date, the RBI is currently fine-tuning the technical and procedural protocols of the sovereign digital currency system. Meanwhile, Das maintained the RBI’s anti-crypto stance, expressing concerns that cryptocurrencies threaten India’s financial stability. According to Das, the RBI has reported these concerns to government authorities and could influence upcoming crypto regulations.

3. Industry chain-related developments: BTC mining revenue increased by 1.7% month-on-month

(The following source website data was updated to February 27)

Last week, the average daily computing power of BTC reached 156.1EH/s, an increase of 2.9% month-on-month; the average daily computing power of the entire ETH network reached 411.1TH/s, an increase of 2.7% month-on-month.

[1] The Chainext CSI 100 Index consists of 100 tokens with the largest scale and the best liquidity in the token market, comprehensively reflecting the overall price trend of the market;

[2] The Chainext CSI 5 Index is composed of the 5 largest and most liquid tokens in the token market (BTC, ETH, XRP, BCH, EOS), reflecting the price trend of the market's largest currency;

Last week, the difficulty of BTC mining on the entire network was 21.72T, an increase of 1.1% month-on-month; the next difficulty adjustment date is March 6, 2021, and the estimated difficulty value is 21.37T (-1.64%); last week, the average mining difficulty of the entire ETH network The difficulty is 5.23T, a month-on-month increase of 2.9%.

[1] The Chainext CSI 100 Index consists of 100 tokens with the largest scale and the best liquidity in the token market, comprehensively reflecting the overall price trend of the market;

risk warning

Regulatory policy uncertainty. At present, the blockchain is in the early stage of development, and there are certain uncertainties in the supervision of blockchain technology, project financing and tokens in various countries around the world, so there are uncertainties in the development of industry company projects.

[2] The Chainext CSI 5 Index is composed of the 5 largest and most liquid tokens in the token market (BTC, ETH, XRP, BCH, EOS), reflecting the price trend of the market's largest currency;