Navigating the Ethereum Conflict: A Closer Look at EIP-1559
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Chapter 1: The Anticipation of EIP-1559
Ethereum's recent peaks are merely a prelude to a significant update on the horizon. Scheduled for July, the much-anticipated EIP-1559, also known as the London Hard Fork, is set to fundamentally alter the Ethereum landscape by introducing a mechanism that will burn Ether with each transaction, leading to a notable reduction in its total supply. This transformation positions Ether as a deflationary asset.
In light of this update, my enthusiasm for Ethereum is palpable—so much so that I find myself needing to take a moment to breathe, guided by the insights of Sam Harris. This upgrade will also introduce "block elasticity," allowing blocks to dynamically adjust according to transaction volume. Coupled with the burning of fees, Ethereum is solidifying its reputation as the premier cryptocurrency.
Vitalik Buterin, co-founder of Ethereum, humorously posited, “If demand for Ethereum usage is sufficiently high, we could witness more ETH being destroyed than created. So, while Bitcoin’s fixed supply symbolizes sound money, could a decreasing supply qualify as ultrasound money?”
The London Hard Fork marks the initial step towards the ambitious Ethereum 2.0. However, not all stakeholders are thrilled about these changes.
Ethereum miners face significant financial losses as transaction fees, which typically benefit them, will now be incinerated. Can you hear those Ether tokens sizzling? This development is merely the beginning of dismantling the current mining ecosystem, as Ethereum 2.0 will transition the entire network to a proof-of-stake model, rendering traditional mining obsolete.
While I wish we could embrace EIP-1559 harmoniously, miners are taking matters into their own hands. Discussions are surfacing about the potential for a 51% attack on the Ethereum chain.
Section 1.1: Understanding Ethereum's Current Mining Landscape
To grasp the full scope of this dilemma, a brief overview of proof-of-work mining—Ethereum’s soon-to-be legacy—is essential. Miners currently wield significant power within the Ethereum ecosystem, arguably surpassing that of developers.
Mining serves not to generate new coins, but to validate transactions. Envision a ledger among friends—perhaps used to track shared expenses at a restaurant. The individual maintaining that ledger acts as the "miner" in a blockchain context. For this service, miners receive compensation.
Expanding this ledger to encompass millions of users, coupled with a marketplace for Crypto Kitties and countless other entrepreneurial ventures, gives rise to Ethereum.
Section 1.2: Misconceptions Surrounding Mining
Despite criticisms from figures like Bill Gates, who decry the energy consumption of Bitcoin and Ethereum mining—valid points indeed—it's crucial to recognize that crypto mining was designed to maintain order, not merely solve intricate equations.
Gigi, the author of “21 Lessons: What I’ve Learned from Falling Down the Bitcoin Rabbit Hole,” succinctly stated, “Bitcoin isn’t about computation. It is about independently agreeing on the order of things... Everyone agrees that the chain with the most cumulative work represents the truth.”
In a proof-of-work framework, miners with greater computational power have more influence over the blockchain, which earns them more Ethereum tokens. This collective effort often leads to miners pooling their resources.
Conversely, the forthcoming proof-of-stake model will grant power based on the number of tokens staked, with miners receiving only random transaction fees—no block rewards. This translates to an annual percentage yield (APY) ranging from 7% to 9% on Ethereum holdings, resembling a crypto savings account. While this is advantageous for non-miners, it poses a significant threat to Ethereum miners.
Chapter 2: The Brewing Conflict
As of March, Ethereum mining was a $1.38 billion industry, largely sustained by elevated gas fees. However, EIP-1559 threatens to dismantle their livelihoods, prompting miners to resist these changes, much like Captain America rallying against adversity.
Flexpool, a smaller mining pool, has even launched a campaign against the proposed update, attracting support from major players like Sparkpool and Ethermine, which collectively control over 20% of mining power. Currently, approximately 60% of Ethereum's mining power opposes EIP-1559, and just a 51% consensus could jeopardize the network, potentially leading to fraudulent transactions.
A recent April Fools' joke hinted at the possibility of such an attack, but the situation is far from humorous.
To understand the miners' perspective, it is essential to recognize their foreknowledge of these changes. Abdelhamid Bakhta, one of the authors of EIP-1559, stated, “Miners should have anticipated this proposal; it was first introduced by Vitalik in a 2018 article on auction types and transaction-fee markets.”
Section 2.1: Potential Strategies for a Network Attack
I appreciate YouTuber Bitcoin for Beginners for outlining the strategies miners might employ to challenge the network:
- Network Destruction: Although theoretically feasible, this option is improbable. Miners earn their livelihood from Ethereum; thus, a coordinated attack would only devalue the currency and harm their own interests—it's a lose-lose scenario.
- Support Ethereum Classic: Miners could choose to back a forked version of the blockchain, similar to Ethereum Classic. However, this presents a significant challenge, as the current Ethereum blockchain has become vastly more intricate since its inception, with DeFi and NFTs emerging as multi-billion dollar industries.
- New Chain Manipulation: Miners might opt to join the new chain and sabotage it from within. However, this would require substantial coordination and could only target blocks that are not fully utilized.
Section 2.2: Remaining Concerns
While viable options for a successful attack on the network are limited, concerns remain. Engaging in conflict with a billion-dollar industry—especially one that has thrived on the very technology they seek to undermine—won’t be easy.
Sun Tzu wisely noted, “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”
The tension between miners and Ethereum developers is palpable. Notably, a mining company has announced a new application-specific circuit (ASIC) miner for Ethereum. Are they making one last push for Ether, or is there something more ominous at play? The decentralized nature of this system often leaves one questioning intentions.
Ultimately, while sympathy for the miners is warranted, this proposed update promises long-term benefits for the entire network. When Ethereum 2.0 launches, transaction capacity will surge from 15 to 100,000 transactions per second.
The EIP-1559 proposal is merely the first step toward this ambitious future.
There’s also EIP 3368, which suggests increasing block rewards to three Ether, gradually decreasing to one Ether over two years. However, the fate of this proposal remains uncertain.
In these tumultuous times, Vitalik Buterin offers a pragmatic perspective: “If some miners exit, new ones will emerge.”
Well said.
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