Pour a little cold water on EIP-1559: The biggest danger for Ethereum is the decline of ideology
It is still too early to celebrate Ethereum's victory.Original Title: "A Little Cold Water on the Launch of EIP-1559"
Written by: Shen Chao TechFlow
On August 5, the Ethereum London hard fork upgrade was completed, and EIP-1559 officially went live.
Ethereum is experiencing an unprecedented highlight moment, and it seems everyone is discussing and waiting for the turning point—Ethereum surpassing Bitcoin.
Goldman Sachs released a report stating that Ethereum is the blockchain with the most "practical use potential," and its market capitalization is expected to surpass Bitcoin.
Arthur Hayes, the founder of BitMEX, wrote an article exploring the possibility of Ethereum's market cap surpassing Bitcoin.
The two main hosts of Bankless, Ryan Sean Adams and David Hoffman, as Ethereum's top advocates, have long promoted ideas such as "Ethereum is the most capital-efficient asset" and "Ethereum surpassing Bitcoin is inevitable"…
It is worth mentioning that, due to the Chinese crypto world often translating and disseminating Bankless articles, a mysterious confidence in Ethereum reversing Bitcoin has spread throughout the Chinese-speaking world.
With the atmosphere set, Ethereum founder Vitalik Buterin also boldly stated in an interview with CNN that Ethereum is expected to surpass Bitcoin in market capitalization.
What does Ethereum rely on to surpass Bitcoin?
EIP-1559 is undoubtedly where everyone's hope lies. In all discussions about Ethereum surpassing Bitcoin, EIP-1559 is mentioned: after implementing EIP-1559, burning the base transaction fee, Ethereum will reverse the inflation trend and become a deflationary asset; as for the price, of course, To the Moon.
For example, Dan Morehead, founder of Pantera Capital, stated in an interview that the upcoming London upgrade will help Ethereum surpass Bitcoin, making Ethereum more like a fixed asset.
The expectation of Ethereum's deflation has also evolved into a MEME symbol, with crypto influencers placing bat and sound emojis next to their Twitter names ??.
But the more Ethereum is praised, the more I feel it is dangerous.
EIP-1559, Cheering for Taxation
People tend to overestimate the short-term impact of something while greatly underestimating its long-term effects, which is very fitting to describe EIP-1559.
This impact can be both positive and negative, although most people view it as a tremendous benefit.
First, we need to understand a real EIP-1559.
The core of EIP-1559 is to change the way users pay for transactions on the Ethereum chain.
Previously, transactions on the Ethereum chain used a first-price auction model, which is easy to understand: the highest bidder wins.
Miners choose which blocks to package based on the bids from users and receive the transaction fees paid by users, which has led to a serious problem—internal competition.
It's like calling a ride or ordering takeout on a rainy day; drivers accept orders purely based on the highest bid, which means only "wealthy people" can enjoy services first, forcing others to raise their bids, thus increasing the average cost.
What could originally cost 20 yuan for a ride ends up costing everyone 50 yuan, which is too competitive.
How to solve this?
This is where EIP-1559 comes in, abandoning the first-price auction and adopting a uniform price auction model, setting a base fee.
This is akin to an internet company stepping in to establish a price alliance to address the issues of high and difficult rides; drivers no longer choose passengers based on price but use the price set by the internet company, which will fluctuate based on real-time supply and demand.
Additionally, to accommodate some users' needs, during congestion, users can also tip miners to expedite transactions.
So, will miners send a large number of transactions to raise the base fee, benefiting themselves?
To prevent this, EIP-1559's most ruthless move appears: miners do not receive the base fee; it is directly burned, which is also the most controversial aspect of EIP-1559.
Without the burning, it would be like a ride-hailing or takeout platform setting dynamic prices and tipping during peak times; once the burning policy is introduced, it changes ETH's monetary policy.
Initially, EIP-1559 aimed to reduce transaction fees, but now everyone is more concerned about whether EIP-1559 can lead Ethereum into deflation and whether the price will go TO THE MOON.
In Bitcoin's mechanism, the system only provides a payment channel, where users pay directly to miners providing accounting services, equivalent to a service fee.
After EIP-1559, the fees that were originally paid directly to miners are taken by the "central" authority for burning, effectively becoming a form of taxation.
Taxes are never only levied on producers; they also include consumers. Can increasing taxes and reducing service providers' income lower transaction costs? For example, can imposing heavy taxes on real estate developers reduce housing prices?
It seems to contradict basic economic principles, so there is a big question mark here. At least from the current operation, there has been no indication of reduced transaction fees.
So why do most holders applaud such a "tax policy"?
Simply put, it benefits ETH's price.
In most people's view, any measure that is favorable for price increases should be supported. This tax, distributed through burning, benefits all holders, akin to a feat of sharing profits with miners.
If an internet platform took most of the base fees from drivers, it would certainly be condemned as "capital sucking," garnering sympathy for miners. However, if this fee benefits all stockholders, then everyone feels this policy is justified.
As for miners, in the face of Vitalik and the Ethereum Foundation's strong influence, they seem to have no choice but to endure.
Compared to Bitcoin miners, Ethereum miners have always been at a disadvantage.
From an algorithmic perspective, miners should be the owners of the blockchain, or at least partners, but since the difficulty bomb was set in 2015, Ethereum miners have been destined to be temporary workers, lacking the "respect" they deserve.
When ETH 2.0 arrives, a split is inevitable, and EIP-1559 has already previewed the contradictions. It seems that Vitalik and the Ethereum Foundation have superficially won, but consensus is fractured, and miners' counterattacks may be on the way.
A major fork is bound to come.
Beware of Prosperity Crisis
In our previous article “Ethereum's True Competitive Advantage: Ideology”, we pointed out that Ethereum's greatest competitive strength is its decentralized ideology.
DeFi is also a choice of ideology; for example, some purists or leading DeFi protocols refuse to develop any applications outside of Ethereum, and this adherence greatly broadens Ethereum's network moat.
All new public chains attempting to challenge Ethereum must realize that technological advancements are actually the easiest part; surpassing in ideology is the most difficult.
Correspondingly, Ethereum's greatest danger is also the degradation of ideology, transforming from a creative and united community into a company controlled by Vitalik and the Ethereum Foundation.
EIP-1559
Layer 2
ETH 2.0
These are the "three small things" that Vitalik and the Ethereum Foundation have been committed to promoting. So far, it seems no one can stop their pace; all non-technical issues are not issues.
Miners can be sacrificed and abandoned at any time; this is the price of growth. Who will be the next to pay the price?
Since EIP-1559, the power structure of the Ethereum system has changed, with a single power entity continuously expanding, printing money with one hand and taxing with the other, similar to a national system.
In 2019, Lane Rettig from the Ethereum core developer EWASM team complained on Twitter: "Ethereum's governance has failed; it is essentially expert rule: a small group of technical experts has the final say on protocol updates."
Compared to Bitcoin's network, which also adopts off-chain governance, Ethereum's "Satoshi Nakamoto" has not yet withdrawn. Although Vitalik is not a dictator, his every word and action often influence others' minds and decisions, especially since the Ethereum Foundation lacks opinions and is afraid to express them.
But interestingly, it was precisely during the one or two years when the Ethereum Foundation had little presence (like in 2019 and 2020) that the entire Ethereum DeFi ecosystem experienced explosive growth.
Throughout history, many great prosperities stem from bottom-up, wild growth, laissez-faire governance, and self-interest, while many painful tragedies often arise from the lofty and grand dreams of certain individuals and organizations and their one-sided wishes.
Although now from the media to the community, there are shouts of "Ethereum is invincible" and "Ethereum is about to surpass Ethereum," the current Ethereum is far from "victorious"; it faces numerous problems and has a long way to go.
Beware of potential crises and the danger of over-praise.
Wishing Ethereum to become better and better.
