What is the impact of 1559 on ETH?

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EIP-1559, known as the "London Hard Fork," introduced several significant changes to Ethereum's fee market mechanism. These impact user experience, miner behaviors, and Ethereum's monetary policy. Here are the main effects:

  1. Better Fee Market and User Experience: EIP-1559 replaced the first-price auction model with a dual-fee model consisting of a base fee and a tip. This change aimed to reduce transaction fee volatility and improve the predictability of transaction inclusion, making it easier for users because they don't have to guess fees. This system centralizes ETH within the Ethereum economic ecosystem, ensuring its indispensability for transaction fees 1 2.

  2. Reduction in Gas Fees: Discussions among experts revealed that EIP-1559 leads to an overall reduction in gas fees due to the more predictable fee model. For example, Coinbase reported a 9% savings on gas fees due to EIP-1559 3.

    EIP 1559: Benefits and Impact

    Vitalik discusses the multifaceted benefits of EIP 1559, from improving the fee market and transaction experience to mitigating instability caused by minor extractable value. He also highlights the significance of the burn aspect and how fee market reform addresses various safety and efficiency issues in blockchain.

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    35 - Designing Ethereum | Vitalik Buterin
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  3. Burning of ETH: A significant aspect of EIP-1559 is the burning of the base fee portion of transaction fees, which decreases Ether's supply over time. This burning mechanism enhances Ethereum's economic security by making ETH deflationary under specific network conditions. Coinbase, for example, has burned substantial amounts of ETH since the implementation of EIP-1559 2.

  4. Improved Economic Security and Less Miner Extractable Value: The burning of ETH contributes to the economic security of Ethereum by reducing dependency on miner extractable value (MEV). This change helps stabilize the network against the instability MEV can cause 1.

  5. Impact on Miners and Ethereum’s Monetary Policy: The fee burn has implications on miners by redistributing the economic incentives, potentially reducing their revenue from transaction fees while securing Ethereum via reduced issuance and fee burns, thus promoting a more deflationary asset model 2.

  6. Support for Smart Contract Developers: EIP-1559 provides advantages to smart contract developers by simplifying fee handling within their contracts and enhancing user experience without requiring significant changes to contract code 4.

EIP-1559 has thus brought about both technical improvements to how transactions are processed and strategic shifts in Ethereum's monetary dynamics, overall contributing to a more stable and predictable fee environment and reinforcing Ethereum's economic security and value proposition.

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