The Etherum network has come under intense scrutiny as costs for social transactions have skyrocketed. The growth of Decentralized Finance (DeFi) and reliance on the Ethereum web to facilitate faster swaps between coins produced a highly profitable future for Ethereum miners. The rollout of Ethereum Improvement Proposal 1559 (EIP-1559) that is set for July 2021 has upset the mining community, which recently announced they would delegate their mining power to Ethermine on April 1st to mimic a 51% attack in a #ShowOfForce.
Miners have been vocal on Twitter and expressed their concern with Ethreum’s plan to implement EIP-1559 during London’s hard fork this July as it will slash miners’ rewards. Miners are concerned that such a change will decrease mining rewards drastically. Regardless of their concerns, EIP-1559 will be rolled out in July.
Ethereum is losing ground
The emergence of DeFi has created a prolific landscape for Ethereum miners, resulting in a steep increase in mining rewards. Users must pay a “gas” fee to the mining network, and an auction system implemented on the network allows miners to process the transaction that allocates the highest fee, thus increasing the costs for social transactions on the social network.
What will EIP-1559 do to the Ethereum network?
The new transaction scheme will change the underlying economics in the network’s existing monetary policy. Users will pay a “base fee” to the network, which is decided by the Ethereum code, similar to the current process. However, to dismiss the current high fees, users can add a tip to increase the transaction speed verification. Currently, transactions with the highest fees are filled first, giving miners an additional income boost.
According to the new proposal, the base fee will be burned and no longer allocated to the miner. This will drastically affect miners’ rewards. According to Vitaly Buterin, it will create a deflationary monetary system, which will increase the value of ether over time, and Ethereum’s native token will be seen as a store of value, similar to Bitcoin.
Ethereum’s USP has been its low fees and fast transaction time. However, in the current state of things, Ethereum users complain about high fees and delayed transactions. This is one of the primary causes for why Ethereum developers have worked to deploy Ethereum 2.0 after “London”, which will facilitate a switch from Proof-of-Work to Proof-of-Stake. However, miners that have contributed to the network’s security consider the move a “slap in the face.”
On the Flipside
- Ethereum miners will directly affect their revenue if they show that a 51% attack is possible on the network.
- The ‘show of force’ will speed up the development and release of Ethereum 2.0, which will actually help miners generate revenue with their holdings.
- Lower fees on the network will enable NFT’s and DeFi to grow exponentially.
- Ethereum Foundation, the non-profit organization overlooking the Ethereum network, could dismiss EIP-1559 and seek to find consensus with the miners.
The mining community has been outspoken against the new changes and created a website called stopeip1559 to voice their concerns. Spark Pool, a popular Ehtereum mining pool, highlighted how miners which have been loyal to Ethereum are being punished for their contribution to the security of the network. They compare Ethereum’s logic with a get-rich-quick scheme, where investors and network developers only care about the token price. While this might be true, miners are still complaining that their rewards are diminishing, impacting their revenue interests.
Vocal miners such as Bits Be Trippin have discussed a planned redirection of hashing power towards a single pool to showcase how miners can directly alter Ehterum’s protocol. Gina Pari of SweBlocks mentioned a 51% attack on the network would not be beneficial for any of the parties involved as it will “speed up the transition to Ethereum 2.0, meaning that the miners would go from half-fee rewards to none”. Such a show of force will affect the price of ether and affect miners revenue directly.
Other miners have been disgusted by Ethereum’s implementation, claiming they will shut down their hashing power in the form of protest. Despite ongoing protests from miners, Tim Beiko, a ConsenSys product manager, mentioned they would be implementing ‘London’ despite the backlash from the community. While mining rewards preoccupy miners, investors applaud such initiative as it will increase the value of ether, which has already hit a new all-time high of over $2,000 on April 1st and is preparing for the subsequent push to $2,500. Mark Cuban, the celebrity investor, also intervened, proclaiming his all-in venture into Ethereum.