EIP-1559, the Ethereum miner revolt and what it all means for DeFi

4 min readMar 23, 2021

Leading crypto-commentator Mark Cuban compares today’s blockchain to “the early days of the Internet.” Much is true about this comparison, not least the increasingly sluggish speeds seen on Ethereum: the main chain of the crypto-economy that is now plagued by sky-high transaction, or “gas” fees keeping average people out of DeFi.

As we have covered in a previous post, the long-awaited upgrade to Ethereum 2.0, which will see the blockchain move from Proof of Work (aka mining Ether), to Proof of Stake (aka holding Ether) will be a true game-changer comparable to broadband replacing 56k dial-up modems. As yet, however, Ethereum 2.0 remains a distant prospect.

In the meantime, developers are working to bridge the gap with Ethereum Improvement Proposal 1559 (EIP-1559), also known as “The Fee Burn Proposal.” The proposal is set to be implemented during the so-called “London hard fork” in July and is intended to reduce congestion and improved user experience. Despite these improvements, though, EIP-1559 has seen a backlash from many in the mining community.

What is EIP-1559?

Fundamentally, EIP-1559 will flatten gas fee spikes, increase the number of possible transactions, and make costs predictable. It will do this by doubling block sizes and, in turn, expanding net capacity for transactions. Additionally, a BASEFEE (all-caps standard) for transactions will be implemented.

The BASEFEE will be determined by current market prices and will go up or down depending on network congestion with users able to give a “miner tip” to push transactions through faster. Users can also set a fee cap, so transactions only go through at their desired BASEFEE. In busy times, this means a transaction with a lower BASEFEE will effectively be held in a queue, rather than being rejected, as is currently the case.

The big change for EIP-1559 is that the BASEFEE, paid in Ether (ETH), is then burned, rather than kept by the miner as gas fees are kept under the current auction-style bidding system. This means wallets and users will be better able to calculate costs, and in lieu of receiving both block rewards and the full gas fee, miners will receive just the block reward and the miner tips, when offered.

The end of Ethereum mining

Miners know their days are numbered. Ethereum 2.0 pledges to be a faster, safer, and more eco-friendly network that reduces energy consumption by 99%. This is largely due to the switch from PoW to PoS, which will make miners redundant. So, as miners currently make a pretty penny from PoW — a record $830 million in fees for January alone — they really don’t want to see this end in the relatively short time they have left before 2.0 comes in.

And so, EIP-1559 is a less than welcome measure among Ethereum miners, who effectively claim they are getting ripped off before they get fired. Others, however, claim miners are holding everyone back from attaining 2.0 Nirvana. In any case, miners are plotting to brigade the blockchain on April 1st with a “show of force.”

Many miners and mining operations have declared their intent to divert their power towards one pool — Ethermine — for 51 hours. This lays the ground for a potential “51% attack” where a miner consortium gains control of more than half of a blockchain’s computing power, sending the whole system haywire. The miners involved, however, assert their actions will not be a malicious attack.

Miners propose actions by other means

As a counterproposal to EIP-1559, miners introduced EIP-3368 on March 12th. EIP-3368 would increase miners’ rewards to 3 ETH per block with a decaying rate of return bringing rewards down to 1 ETH over two years. The proposal states that the network’s security could become vulnerable should enough miners scale down in preparation for Ethereum 2.0.

After Tim Beiko acknowledged the EIP-3368 counterproposal in a March 13th tweet, Red Panda Mining rescinded their participation from the “show of force.” However, Beiko has more recently announced that EIP-3368 definitely won’t be part of the London hard fork in July. The drama continues to unfold, and this kerfuffle may lead to speeding up the miners’ exit. Indeed, a quick merge to PoS could become the main focus for Ethereum’s core developers after the London fork.

What does EIP-1559 mean for DeFi?

Contrary to many users’ hopes — particularly those in DeFi — EIP-1559 doesn’t mean they will pay less in fees for using platforms and protocols. The BASEFEE and tips will still add up, and higher tips will still mean faster transactions. That being said, stability means better business and this could have a knock-on effect for end-users. Fewer transactions will be kicked back during transaction spikes and, finally, smaller fish will get to swim with the whales who previously outbid them for transaction space.

As we have already seen with Binance Smart Chain, other blockchains could pick up some action in the DeFi space as this situation plays out in the court of public trust, but the end of Ethereum seems unlikely. Any moves to other blockchains running on PoW means facing these same problems again in an economically and ecologically unsustainable model. PoS is necessary, and any blockchains currently running on PoS would have to scale up massively in order to jockey for Ethereum’s clientele as it moves towards 2.0.

Another implication of “The Fee Burn Proposal” is its effect on the value of ETH. As ETH is burned instead of entering the market, scarcity leads to value creation, and prices are predicted to skyrocket. This will not be a boon for DeFi users, who have to pay for gas in ETH. As such, don’t hold your breath for relief from those transaction fees just yet: miners revolt or not.




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