Saturday, April 10, 2021

Coin Metrics Explains Why EIP-1559 May be Unable To Reduce Gas Fees on Ethereum Network

According to a report from Coin Metrics, a crypto analytics platform, the much-awaited implementation of Ethereum Improvement Proposal (EIP) 1559 may be unable to completely fix the problem with gas fees on the Ethereum network.

In the Ethereum Gas Report, Coin Metrics described EIP-1559 as a means to fundamentally change Ethereum’s gas mechanism:

“Instead of a user-specified gas price, Ethereum transactions will have an algorithmically computed base fee. It will also introduce a new block target size mechanism, which will aim to keep blocks from consistently reaching maximum capacity.”

Read Also: Ethereum Developer Shows That the Benefits of EIP-1559 and PoS Are Yet To Price into ETH

According to the report, EIP-1559 will introduce a target block size mechanism that will aim to keep blocks at 50% capacity instead of having a fixed maximum block size.

“Under EIP-1559, maximum block size will get doubled from 12.5M gas to 25M gas. But the target block size will still remain at 12.5M gas.”

It added that the block size mechanism will aim to keep blocks at 50% full by adjusting the base fee, which will be introduced by the much-anticipated EIP-1559. The base fee will be a required payment for users to include their transactions in a block.

Coin Metrics Explains Why EIP-1559 Maybe Unable To Reduce Gas Fees

According to Coin Metrics, the implementation of EIP-1559 is likely not to bring vast improvement to the high gas fees issue that currently plagues the Ethereum network, due to the fact that high transaction fees are fundamentally a scalability problem:

“If Ethereum can only process a few hundred transactions (on average) per block, there’s going to continue to be high fees as long as dapp usage keeps increasing. Gas prices will continue to be high as long as there’s high competition for block space.”

Read Also: IntoTheBlock Data: Three Reasons Why Ethereum (ETH) Will Likely To Keep Growing

Despite the fact that it won’t completely fix the high fees problem for Ethereum, the report says:

“EIP-1559 will help improve Ethereum’s user experience by making fees more predictable. EIP-1559 should help reduce variance in gas fees and give users a clearer picture of the actual fee they’ll need to pay.”

Describing the negative impact of full blocks and congestion on the Ethereum network, the report states that:

“DeFi usage and high competition for block space has led to full blocks and congestion, which has driven up gas prices. EIP-1559 will help improve Ethereum’s transaction fee user experience, but it ultimately likely won’t fix the high gas price problem.”

Ethereum 2.0 is the Real Game-Changer

According to the report, layer-2 (L2) scaling solutions, especially Ethereum 2.0, will be needed to actually reduce transaction fees over the long-term.

“Through various means, scalability solutions will increase the amount of transactions that can be processed per block, which will help relieve the congestion contributing to high fees.”

Read Also: Ethereum Developer Explains How ETH 2.0 Will Save ETH Holders Tens of Billions of Dollars per Year

There are speculations that the official launch of Ethereum 2.0 may not play out until 2022, but the upgrade may now happen earlier than expected due to the debate that erupted between Ethereum miners and developers over the implementation of EIP-1559.

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Solomon Odunayo
Solomon has a growing passion for writing, this propelled him to keenly work on Eagles News Media for about two years before delving into the cryptocurrency and Blockchain industry he finds more interesting. He worked as a crypto Journalist and Editor at NewsLogical before joining Herald Sheets, owing to the priceless experience he has accumulated since he became a contributor in the crypto community.

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