EIP-1559: Great option to deal with MEV (Miner Extractable Value)

The EIP-1559 proposal has been approved and will be implemented in the Ethereum London hard fork upgrade in the middle of this year. If you're not familiar with this proposal, EIP-1559 is called "ETH's Burn Mechanism" or "ETH's Scarcity Engine". Its burning mechanism has generated all the attention and excitement around the implementation of this proposal, because more ETH will be burned as transaction fees, and burning ETH means that the scarcity of ETH will increase. However, this is only one aspect of what EIP-1559 brings—it has other key, non-monetary policy benefits. This proposal is about aligning the growth of Ethereum with those who protect the Ethereum economy. It's about long-term sustainability, it's about building a system that will last for generations. First, let's understand some basic concepts. The full name of EIP is "Ethereum Improvement Proposal", that is, "Ethereum Improvement Proposal". This term is derived from Bitcoin's BIP, also known as "Bitcoin Improvement Proposal", a Bitcoin improvement proposal. In open source software development, anyone can write code and add it to a repository. However, before the new code can be officially incorporated into the "Ethereum" warehouse, it needs to be approved by the Ethereum core developers (that is, the people who manage the Ethereum warehouse on Github). In short, the EIP proposal is like a "bill", which needs to go through a process before it is officially passed. Decentralized cloud storage platform Storj supports zkSync 2.0 and EIP-4844: Jinse Finance reported that the decentralized cloud storage platform Storj announced that it supports the Ethereum Layer 2 expansion solution zkSync 2.0 upgrade and EIP-4844. This upgrade enables storage nodes to The smallest Gas fee is received and paid, and the Layer 2 fee is greatly reduced, making decentralized cloud storage more cost-effective. [2022/12/6 21:25:59] That is to say, after each EIP is proposed, in order to make it the "law" of Ethereum, it needs to be evaluated, revised, tested and approved (or disapproved) the process of. EIP-1559 is arguably the biggest upgrade ever made to any cryptoeconomic system. Not only because this proposal would change the monetary policy of ETH, the world's second largest crypto asset, but also because it is a paradigm shift in the way transactions are packaged into blocks in the cryptoeconomic system. EIP-1559 is a bit like a "blind man and an elephant" metaphor: ‍ Depending on where you stand, EIP-1559 can achieve different things: EIP-1559 uses a mechanism similar to Bitcoin PoW difficulty adjustment, which automatically finds Dynamic balance of Gas price. When it is found that the block production speed of Bitcoin exceeds 1 block per 10 minutes, the mining difficulty of Bitcoin is automatically adjusted upward; when the mining speed of Bitcoin blocks is lower than 10 minutes, the mining difficulty of Bitcoin is automatically decreased Adjustment. MetaMask is about to release a new version that supports EIP-1559: On December 23, MetaMask officially posted on social media that it will soon release a new version that supports EIP-1559. It is reported that the new version will improve the accuracy of the estimated gas fee, replace the new UI interface, and simplify the original advanced setting options. [2021/12/23 7:58:32] This is how Bitcoin’s block rate maintains a steady 10-minute average, and importantly, this mechanism is built directly into the Bitcoin protocol. EIP-1559 does the same thing, but it adjusts the price of packaged transactions. EIP-1559 will bring about the reform of the Ethereum fee market. The main changes that this proposal will bring are as follows: the current Gas limit of the Ethereum block is 12.5 million Gwei. After the EIP-1559 proposal takes effect, this Gas limit will be replaced by Values replace: "Long-term goal is average block gas of 12.5 million" & "new block gas cap of 25 million". Each transaction needs to pay BASEFEE + Tip (tip), of which BASEFEE will be destroyed, and BASEFEE will be adjusted in each block, the goal is to keep the average block Gas usage at around 12.5 million. In other words, EIP-1559 will double the gas limit (block space) of Ethereum blocks, but the goal is to keep the block capacity at about 50%. Over time, Ethereum's block size will average the same size, but this extra capacity allows for more flexibility in transaction packaging. Ethereum EIP-4345 Proposal: The Difficulty Bomb Can Be Postponed Until May 2022: On October 9th, Ethereum developers Tim Beiko and James Hancock released the EIP-4345 proposal, proposing to postpone the Ethereum difficulty bomb to May 2022. According to the proposal, it is expected that Ethereum can complete the Shanghai upgrade and the merger of ETH1.0 and 2.0 by May 2022, so the difficulty bomb can be postponed until after that date. At present, the EIP-4345 proposal has not been terminated, and the content-zce of the proposal can be revised in the future. [2021/10/9 20:16:29] The Ethereum network will adjust BASFEE up and down to achieve the desired average block size. If the capacity of the Ethereum block exceeds 50%, the Gas cost (that is, BASEFEE) of the packaged transaction will increase, thereby suppressing the demand for block space; if it is lower than 50%, the Gas cost (BASEFEE) will be reduced, Thus driving the demand for block space. This makes it possible to eliminate the "set gas price" step in the transaction process. While Ethereum and DeFi established users are used to gas fee management, the process of understanding how to choose a gas fee is one of the biggest obstacles to cryptocurrency adoption. It's so foreign to most people that it's hard to get used to it. Whereas EIP-1559 is a UX (User Experience) improvement to how transactions are done on Ethereum. Ethermine launches front-end running software to help miners offset EIP-1559 revenue loss: Jinse Finance reports that Ethereum mining pool Ethermine has launched a new front-end running software that can allow miners to obtain greater profits from each block mined , so as to alleviate the sharp decline in mining fees due to the imminent adoption of EIP-1559. The software, dubbed Maximum Extracted Value (MEV), has generated around $5 million in profits for traders and miners in the past 24 hours alone. [2021/3/18 18:54:55]MEV (Miner Extractable Value, Miner Extractable Value) means that miners reorder transactions on the chain (usually based on transaction fee bids) and review (that is, package transactions) into the block), at the expense of user interests at the expense of the benefits obtained. Those who have the right to order transactions (i.e., miners in PoW, or validators in PoS), have the ability to order transactions in a way that maximizes their own benefits. Occasionally, blocks in Ethereum contain transaction fee earnings that are significantly higher than the block's ETH reward (currently 2 ETH per block in Ethereum). This is because arbitrage robots will obtain arbitrage value in the Ethereum network by participating in transaction fee bidding wars. For example, the more common MEV at present comes from the arbitrage behavior of third-party trading robots between two or more decentralized exchanges (DEX). Arbitrage opportunities exist when the price of a crypto asset deviates between two or more DEXs. For arbitrage, many competing third-party robots will try to bid higher Gas fees to make their transactions packaged by miners as soon as possible, but this damages the user experience of normal traders (transaction fees may rise significantly, and transaction The waiting time may be greatly extended). Ethereum Developers Are Seeking Community Funding For Improvement Proposal EIP 1559: Ethereum developers, having run into hurdles dealing with high Ethereum transaction fees, are seeking more funding from the community for Ethereum Improvement Proposal EIP 1559. In response, open source software funding platform Gitcoin’s Community Fund will provide bounties and incentives for the Ethereum Improvement Proposal EIP 1559. It is reported that the Gitcoin community fund was launched yesterday. There are more than 36 Ethereum and $16,216 worth of stablecoin DAI in the fund pool of the project, and Gitcoin will make some donations. (Decrypt) [2020/6/28] In the end, the benefits of this transaction fee bidding war will all fall into the hands of miners, because the transaction fee bids of arbitrage bots will even be equal to the value they can obtain from arbitrage. For example, the figure below shows the case of an Ethereum block with a block height of 10864496. The total reward (including transaction fee + 2 ETH mining reward) of this block exceeds 504 ETH! This could also destabilize the blockchain consensus. If the total reward of an Ethereum block is 30 ETH (2 ETH is the newly issued block reward, 28 ETH is the transaction fee), all miners will have the motivation to no longer mine on the longest chain, and It is to try to re-mine the block containing the 30 ETH reward (such as block reorganization) to obtain these fees. EIP-1559 solves this instability by destroying the ETH transaction fees paid to miners, significantly reducing the incentive for miners to try to mine old blocks after new blocks have been broadcast. Although the above mechanism is a wonderful upgrade of EIP-1559 proposal to Ethereum, this proposal is more famous because of its impact on the supply and issuance of Ethereum’s native asset ETH. EIP-1559 officially links the growth of the Ethereum economy to the scarcity of ETH assets. The monetary policy of Ethereum is "Minimum Viable Issuance", which means that the amount of ETH newly issued by the Ethereum protocol is "small enough" to ensure the security of the Ethereum network. EIP-1559 enables Ethereum to "recycle" spent ETH and reduce the net issuance of ETH. EIP-1559 will destroy the ETH used as transaction fees, that is, this part of ETH will be removed from the total circulation. In the PoS mechanism, the cost of attacking the system is proportional to the scarcity of the pledged assets, that is, the scarcer the assets, the higher the cost for the attacker to obtain the assets used to launch the attack. Based on EIP-1559, ETH will become more scarce, because all transactions on Ethereum will destroy a certain amount of ETH. EIP-1559 will make the Ethereum network more secure. Due to the deflationary pressure brought by EIP-1559, ETH will become more scarce, which in turn will make ETH more valuable. If the supply of ETH decreases due to EIP-1559, then logically, the value of ETH will increase. This is supply and demand! But there is a synergy here. If EIP-1559 makes ETH more valuable, it means that Ethereum can issue less ETH to achieve the same level of security. That is, EIP-1559 not only puts deflationary pressure on ETH by burning transaction fees, but also potentially reduces the issuance of ETH as block rewards. If we issue 2 ETH per block at $2000, then we can issue 1 ETH per block at $4000 to achieve the same level of security. By burning ETH today, we reduce the need to issue ETH tomorrow. Ethereum is generating massive fees, surpassing 11888 ETH (see chart below) in the past 24 hours, worth over $2100. Based on EIP-1559, the burning of this 11888 ETH fee will translate into fewer ETH issuances in the future, according to the "minimum necessary issuance" monetary policy. Above: 24-hour transaction fee changes on the Ethereum network. Source: etherscan.ioEIP-1559 will formally connect ETH assets to the Ethereum network, and return the value of the Ethereum economy to those most closely related to the health of Ethereum: ETH holders! Ethereum, as an economy, is secured and maintained by ETH holders. The people who believe in the value of ETH are the ones who buy it and hold it, protecting it from risk. EIP-1559 will reward all ETH holders who take risks on Ethereum and protect it from attacks. With the arrival of EIP-1559, the GDP of the Ethereum economy will be officially captured by ETH, and the value of the Ethereum economy will return to the hands of those who protect the network from attack. This is good mechanical design. To me, the success of EIP-1559 being approved for inclusion in the London upgrade speaks to the balance between centralized innovation by Ethereum researchers and developers and a decentralized community that can identify good upgrade proposals, And vigorously support it until it is approved. This shows that the community can identify good things, coordinate it in a decentralized way, and make it happen. This is a positive sign for the future.

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