EIP-1559 what does it mean for miners?
You probably heard about EIP-1559, or maybe you heard that Ethereum is cutting rewards from miners but don’t panic in this article we will explain what is about to happen and when.
After posting our last article about the Beanconchain launch a member(username ETH) of our discord support mining community, asked me about EIP-1559, although I heard it before I was not sure what it meant after a few videos and articles came to found out how this upgrade won’t bring good news for miners.
What is EIP-1559
EIP (Ethereum Improvement Proposal) 1559 is a proposal initially created by Vitalik Buterin with the intent of reducing the cost per transaction by not paying the miners the gas fee that users of Ethereum pay by bidding for the gas fee.
I know it doesn’t the easiest thing to understand but essentially instead of miners getting that gas fee paid to them, it will instead be burnt(destroyed).
This means that Ethereum will have a smaller issuance and so less ETH will be mined and distributed on the network while making it easier for those who make transactions on the network to use it.
When will it go live
In the last implementer's dev call the developers were discussing testing the last steps of this proposal and how it still needs to be tested and tweaked. The developers are also preparing a document that will show exactly how this proposal will impact miners, and it will be sent to the biggest miner representatives such as the big pool owners like ethermine, f2pool, and others.
EIP-1559 can go live after the Berlin fork that is planned for the next weeks or the latest in February.
Tim Beiko one of the developers on the Ethereum network mentioned on Twitter that this EIP will not go live before or at the same time as the Berlin fork and that it will probably only be launched a few months later pointing to maybe May, June, or July but as mentioned earlier the developers are still doing tests and there is no definitive date.
What does this mean for miners
I know this is the part that most concerns people that are reading this article, so I will try to explain as well as I can to my knowledge.
Right now every Ethereum block consists of 2 Ethereum coins + a base fee + gas fee which means that when we see a lot of transactions and congestion on the network the block can easily triple passing from 2 coins to 6 or even more.
In the image below we can see the reward per block is more or less 3 ETH per block instead of the 2 predefined, all that ETH that is more than 2 is distributed to miners and that’s why you as a miner saw very high and even insane gains in the last three months, in November and December we had blocks with 8 and 9 coins per block.
When EIP-1559 goes live this will not happen again meaning all blocks will contain 2 coins + a small fee for miners but not even close to what we see today.
It’s still not 100% clear how much this fee will be because we need to wait for the Ethereum developers to run some tests and present the document that they mentioned in the last dev call on the 14th of January 2021.
We can assume that by implementing this EIP and reducing the fee for miners by burning it we will see a 30% (maybe more maybe less) drop in ETH that we get per block as miners.
Mining community is not happy
Right after the Ethereum developers had their last call about this upgrade we saw a huge backlash from the mining community that is not happy at all with these changes. In my opinion, it is only normal for people that make money with mining to see these changes as a threat to their profit.
On Reddit, YouTube, and Twitter many miners are complaining about how this change will actually centralize Ethereum mining as the smaller miners or the miners that have a high electricity price will have to stop mining this coin or even stop mining altogether and drive all the mining power to places like China where the electricity price is much lower. Basically, miners claim this will kick the little guy of the network while the big farms will gain more hashrate.
Pros that come out of this upgrade
With this upgrade the developers believe it will drive the Ethereum price up because of two reasons, one of them being that less Ethereum will issued daily because of the burning component. The second reason is that miners have to pay their bills to keep their rigs mining, so they have to sell the coins mined, by giving fewer coins to miners there will be less Ethereum for sale on the market and thus driving the price up. Some say this is not possible because Ethereum does not have a hard cap meaning there is no set of limited coins that can exist like what happens with Bitcoin where only 21 Million coins will exist forever.
Another important pro of this upgrade as mentioned at the beginning of the article will be the interaction with the network while doing transactions because it will be easier to determine the gas fee per transaction without having to bid for the gas. Basically, it will be easier and smoother to make a transaction on Ethereum.
Conclusion
All the details are still being discussed and tested as I am writing this article so many things can change, we urge you to follow the links down below for a better understanding of this upgrade, and we also urge you to not do anything irrational right now, don’t invest all your money into mining or don’t start selling all your GPUs now.
Mining is still very profitable right now, and we still don’t know when the EIP will be implemented and how much is the cut in rewards once the upgrade goes live.
We plan on posting a new article once we have more information about this topic
