Ethereum’s New Transaction Pricing Mechanism ‘EIP 1559’ Good for Users, Bad for Miners

Ethereum are introducing Improvement Proposal EIP 1559 to help address issues with high transaction fees (known as “gas price”) and improve user experience. The update is scheduled to be included in the London hard fork in July or August 2021.

EIP 1559 is probably one of the biggest milestones we’ve seen recently […] Now, they’re actually controlling inflation on Ethereum

Eric Turner, Director of Research at Messari

Users traditionally have to set the Gasprice for a transaction, which is part of an auction process that allows miners to select transactions to process. With a higher than average Gasprice the user has an increased likelihood of their transaction to be processed faster. This mechanism can lead to:

  • Mismatch between volatility of transaction fee levels and social cost of transactions
  • Needless delays for users
  • Inefficiencies of first price auctions
  • Instability of blockchains with no block reward

How are miners affected by the hard fork?

Ethereum mining revenue grew 65.1% from January to February, and transaction fees grew with 122.1% this lead to a total mining revenue of over $1.3 billion. Users have been up in arms about fees as well as some users having to play many times the value of the transaction in Gasfees.


This means that miners have the most to lose from the proposal being implemented since transaction fees will be limited to a smaller range and also gradually increasing the difficulty of mining on the network. Thereby decreasing the reward and frequency of rewards. A community survey conducted on EIP 1559 included eight of the nine mining projects, and resulted in seven of the eight refusing to implement the IEP.

Additionally, 60% of Ethereum network’s hash power is against the proposal, however developers are going through with it regardless of the discontent shown by miners.

Why is this good for users?

Due to the reduced supply of Ether as a result of the burning process the value of Ether may increase because of the scarcity of the token. The update also helps reduce inconsistency in the price of fees stopping the guesswork needed to process a transaction or the reliance on sites like ETHGasStation. This will also allow wallets and users to auto-set the gas fees and inclusion fees.


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