Unchained - Ethereum's EIP-1559 Will Solve Some Problems But Big Ones Will Remain - Ep.250

Episode Date: June 29, 2021

Taylor Monahan, CEO of MyCrypto, and Tim Beiko, Ethereum Foundation core-dev facilitator, discuss the upcoming upgrade to the Ethereum network, EIP 1559. Show highlights: why Tim believes EIP 1559 is necessary what narrative is driving EIP 1559 what problems the network upgrade will solve how Ethereum transactions/fees work whether gas prices are correlated with ETH/USD the 3 main protocol changes that EIP 1559 proposes why Taylor, as the CEO of a wallet provider, is wary of EIP 1559 how EIP 1559 will affect Ethereum’s block size what changes wallet providers are considering due to EIP 1559 whether ‘Black Swan’ events will be more or less likely after the network upgrade how EIP 1559 will affect miners whether Tim or Taylor believes that miners could fork Ethereum to stop EIP 1559 how EIP 1559 will change the state of miner extractable value (MEV) how Taylor and Tim feel about the Ethereum as sound money narrative in light of EIP 1559 when EIP 1559 will go live Thank you to our sponsors! Crypto.com: https://crypto.onelink.me/J9Lg/unchainedcardearnfeb2     Tezos: https://tezos.com/discover?utm_source=laura-shin&utm_medium=podcast-sponsorship-unconfirmed&utm_campaign=tezos-campaign&utm_content=hero     Conjure: https://conjure.finance      Episode Links   Taylor Monahan Twitter: https://twitter.com/tayvano_ MyCrypto: https://mycrypto.com/    Tim Beiko Twitter: https://twitter.com/TimBeiko Ethereum Foundation: https://ethereum.org/en/foundation/    EIP 1559 Resources: https://hackmd.io/@timbeiko/1559-resources Taylor Monahan tweets https://twitter.com/tayvano_/status/1397725861575421953 https://twitter.com/tayvano_/status/1408000351916093441 https://twitter.com/tayvano_/status/1407853518493413379 Actual proposal: https://github.com/ethereum/EIPs/blob/master/EIPS/eip-1559.md  Research: http://timroughgarden.org/papers/eip1559.pdf  Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto six years ago, and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the June 29th episode of Unchained. Subscribe to my newsletter, Unchained Daily, for a daily five-minute dose of headlines, memes, trends, and recommended reads in order to stay up-to-date in the crypto industry. Head on over to Unchainedpodcast.com and the sign-up link will be right there. You can also find the link in my Twitter bio. The Crypto.com app lets you buy, earn, and spend crypto, all in one place. Earn up to 8.5% interest on your Bitcoin and 14% interest on your

stable coins, paid weekly. Download the Crypta.com app and get $25 with the code Laura. The link is in the description. TASOS is smart money. That's redefining what it means to hold. gold and exchange value in a digitally connected world. Discover how people are reimagining the world around you on Tezos. Conjure brings any asset you want onto Ethereum by allowing for users to create synthetic assets which track other markets. With zero interest loans and unlimited assets, it's helping defy to consume tradfi. That's C-O-N-J-U-R-E dot finance. Check it out. Today's topic is EIP-1559. Here to discuss our Taylor Monahan, founder and CEO of MyCrypto, and Tim Beko, Ethereum Foundation Core Dev Facilator.

Welcome, Taylor and Tim. Thanks for having us. So we're here to discuss this upcoming upgrade to the Ethereum Network called Ethereum Improvement Proposal 1559. It will be a pretty substantive overhaul that will affect a number of things on Ethereum, including its monetary policy, security, and user experience. Can you give an overview of what EIP? P-1559 does?

Sure. I can take that. So 1559 is, like you said, a pretty big change to Ethereum. And at a high level, what it does is it changes the way transactions are included in block from going to a spot where all of the blocks have a fixed size and then the transaction fees need to vary a lot in order to get in that block to allowing blocks on Ethereum to have more of a variable size so that we can get better or tighter bounds on the fees that people pay on Ethereum. And that's really kind of the gist of it.

And in order to get that right, there's a ton of adjacent changes that need to happen. And maybe it's sort of taking a minute to explain kind of why we're going about it this way. So if you look at transaction fees on Ethereum and Bitcoin and most blockchains that don't have something like EIP 1559, they typically use. use what's called the first price auction. So that means people will just put in a bid, which is your gas price on Ethereum, and whoever has the highest bid gets included. And the problem with that is it leads to people overbidding. It's kind of like buying your house

in like a hot market where like, you know, the house might be listed for a million dollars, but you know, you really want it so you put 1.1, somebody else will put 1.2. And then somebody else come in, they'll put $1.5 million. And they'll pay $1.5 million, even though, you know, they could have paid 1.2 and one cent, they would have still been the highest bid. So that difference is kind of a loss to them. And outside of blockchains, this problem is actually solved for the most part. Typically, what people do is they'll use a second price auction. So the most, I think, popular implementation of that is stuff like Facebook and Google Ads. When people bid to have an ad show up in your Google search or your ad feed, they'll do the same thing, right? Everybody will say

how much they're willing to pay, but then they'll only pay the second highest price. So if I would have paid $1, Taylor would have paid $2, you would have paid $3, your ad gets put in, but you'll pay Tater's $2 bid. And this is kind of like the optimal economic way to do this. But the biggest problem is it requires a centralized party to look at all the bids and trustlessly, you know, say this is actually the highest and the second highest. And because we don't have this kind of central trusted third party on blockchains, We can't simply switch it out model.

And that's why we need to do something like EIP 1559, where instead we just have this value in the protocol, which we call the base fee, which tells you what's the minimum amount you need to pay to be included. And if more people want to do transactions on Ethereum, we simply raise that minimum. And if less people want to do transactions, we'll lower it. So this is a bit of background on how it works and kind of why we have to use this pretty special and sometimes convoluted mechanism. Yeah, on a theorem. Taylor, do you want to add anything? Yeah, I know. I think that that was a really good explanation.

And I think the, I guess from my perspective, I think the biggest points of conversation right now are about more about like the monetary policy aspect of it than the all the other things. Because as I was doing my research from like a variety of perspectives, right? Like, okay, I'm a wallet. I need to implement this perspective. but also like I'm an Ethereum holder and I care about this stuff perspective. I was actually like really surprised to see how much the sort of,

I guess the narrative behind the EIP has changed. And I don't necessarily think that that's the, I guess the contributors to the EIP, the writers of the EIP, whatever you want to call them. I don't think it was them so much doing it. But yeah, for the last like, oh gosh, I guess for most of 2021, it's been more about the monetary policy and specifically about this like idea that the,

the inflation decreases and therefore the price of beef goes up. Like that very bomo-y hyped up narrative was kind of overwhelming. And that's where like I guess some of my commentary has been coming from. All right. So yeah, we'll dive into all that in a moment. And, you know, first we'll just cover the basics on EIP-1559. But did either of you want to elaborate a little bit more on the other problems that EIP 1559 aims to solve. So there's overpayment or, you know, inefficiency of payments. But was,

there anything else that you feel, you know, this is trying to tackle? Well, so one of the things that we see, I think any user of Ethereum has experienced this, right, is the fact that like you don't actually know what to pay, period. Like you're trying to send a transaction and you don't know what to pay. And part of the reason is because the wallet doesn't actually have. all the information it needs because you as the user are the only one that knows what priority your transaction is, right? Sometimes I'm sending a transaction and it's like it's payroll or it's something like that. And I just wanted to go through at some point today and I want to be confident that it's going to get through. Obviously, there are all the defy farmers and the arbitragesers and the

traders who need that transaction like now, like the next block. And so like there's so hardcore about it that like if it's three in three blocks they don't want it or if it's in two blocks they don't want it. If it's not in the next block, they don't want it to go through. And so there's a lot of different issues where like the user, the person behind the screen has information that the wallet doesn't have, that the network doesn't have. And it's just a, it's just a mess, to be honest. Like there's so many different factors and that's all of those things coming together in the most elegant way is what this EIP is trying to solve. And I think it does a good job at a lot of them actually.

Yeah, and maybe two things I'll add to that. On the user part specifically, one thing that's kind of neat about 1559 is it lets you say, what's the maximum you're willing to pay for your transaction? But then it gives you a refund for the difference between that and basically the market price, right? Whereas today, if you know, I'm willing to pay 10-gway or 20-goy or 50-gway, I'll have to put that as my gas price, and that's like the amount I'll end up paying. But, you know, maybe I could have been included for 12-Gway instead of 20. So 1559 by default kind of gives you that refund.

I think the other part that's kind of somewhat related to the monetary policy that I define quite important is 1559 make sure that transaction fees on Ethereum at the protocol need to be paid in Ether. And this is like a really, you know, if you start from the other way and I tell you, you know, there's this blockchain called Ethereum. Ethereum is like the currency that you use to transact on it, but you don't actually need Ethereum, you don't actually need Ether to use it. That kind of sounds like a bug. So to me, it kind of fixes this bug in the economics where now, after 1559, every transaction needs to pay at least a minimum part of the fee using Ether.

Wallets and, you know, minors and whatnot are still free to, like, abstract that to their users. Like, there will be services that, you know, allow you to pay for your transaction and die, or, you know, where you've been seen some coming up, like fiat and whatnot, but behind the scenes, you know, whoever is like including your transaction in the block actually needs the own ether to pay for that transaction.

And that's like a pretty fundamental part that I think was missing in Ethereum that 1559 brings. Yeah. You know, when I first read about that, I thought, who's going to use Ethereum and then try to pay the fee and something other than ETH just because it just seems like that would be the easiest way? But then when I was doing research, I actually came across this report. that was like, oh, here's an example of such a transaction. And I thought, oh, okay, so people are

actually doing this. And yeah, so we'll get more into this later, but essentially what will happen after this is adopted is that this fee is burned. And in order to have that fee be burned, you know, it can only be burned in ETH. And so even if someone were to try to circumvent, eventually the minor would have to obtain enough ETH to, you know, pay that fee and have it burned. So let's actually just dive into the fee issue because that's been probably one of the biggest pain points for Ethereum users for quite a while now. But before we get into the particulars on that, I just want to make sure the whole audience, you know, kind of has the baseline. So why don't we just kind of break down at a simple level, how fees for transactions work on Ethereum right now?

So right now, if you want to send a transaction, most of the wallets will abstract this away in some capacity. But you have the gas price, which is the, call it like the multiplier, the priority, the speed. It's how fast the transaction, right? The higher the gas price, the higher, the more the the miner will be paid. And therefore, the more likely the minor is going to include it in the block sooner. Like the miners prioritize the transactions that pay them the most over ones that pay them less. And then you have the gas limit, which is it's basically like how much computational power a transaction takes. And this is why a basic like transfer of ether is cost less than doing some fancy crazy flash loan with like four different D5 protocols, right? And so together combined,

they create the transaction fee. And that entire fee, it's like attached to your transaction, whatever you're doing in your transaction, whether you're sending ether, doing a contract, or whatever you're doing, that transaction fee is attached. And then that ether is moved from you to the miner who successfully minus the block. So from the miners' perspective, they have all these transactions flying at them, and they all are promising different amounts of money, and they choose the ones that have the most money, obviously, and they include those in the block next. And so if the block is full, which it is a lot these days, if the blocks are full, that's where you get into these crazy situations where like Uniswap does anirdrop.

And then everyone's trying to claim their uni and running around and racing. And the gas price goes from, say, five way, all the way to 500 way in a matter of hours. And then me, I'm like, what's going on? I just want to run my payroll. I just want to buy my coffee. And that's where the frustration is stemming from. And it makes sense. It makes sense from the minor's perspective.

It makes sense from the protocol's perspective. But as a user, I'm just sitting there going like, screw this. And Tim, did you want to add anything? Yeah, I think one, you know, I think that's like a very good overview of this status quo. And one thing that's worth highlighting to you is, yes, you know, for example, when you need makes anirdrop, more people, want to use the chain, so it makes sense for the price to go up, right? Like, because the kind of demand for the chain is increasing and obviously the supply of block space is fixed.

But what you start to see in those periods is people who get included in the same block will pay wildly different prices. And this is kind of the craziest part because, you know, like, except for the very first few transactions in a block, which often are transactions with MEV or arbitrage opportunities or things like that. After that, basically, there's no difference whether your transaction is like the 50th or the 60th in the block, right? And ideally, you'd want to pay the same price because you're getting executed at the same time. And if you look at the data right now, we'll sometimes see like a 5 to 10x difference between like the kind of 10th percentile transaction price and

the sort of mean or median. And this is what 1559 will help reduce. It won't make, you know, the price cheaper when everybody wants to use Ethereum at the same time, but it'll make the range of prices that people pay kind of much tighter. And it'll tell you, well, if you want to use Ethereum right now, this is how much you should pay. And if, you know, if the price is too high, you're welcome to wait and, you know, wait until the UDAR drop is over. But at least you know, you're not trying to kind of outbid everybody and then end up overpaid. Yeah, I think of it a little bit like the Uber or Lyft price surging element. Exactly. You know, yeah. Yeah. So, One thing that I see confusion about sometimes online is people, you know, feel that maybe the price of ETH can be correlated with the fees.

But as far as I understand, the price of EF going up does not directly cause high fees, right? It's that at that time, that's correlated at times of high network activities, which is what causes the gas prices to go up. Was that a good explanation? It always depends on what timescale you're looking at, right? But if you look on a very short time scale, I would say that gas fees are correlated, not with the price, but with the volatility, mostly because of defy. So if you see, say, ETH goes up 20% in a day, everybody will want to, you know, open, take loans to go margin long on ETHER. And that obviously creates demand for the platform. Similarly, if you see ETH drop 20% in the day, then people want to fund their loans and not get liquidated and whatnot, and that creates activity.

So it's not the fact that the price is higher or low, but there is some correlation between the volatility and the price and the gas fees. But it is worth noting, though, that the gas price you pay is like independent of the ETHUSD price. Right. So if assume you have like, you know, just the price going up kind of steadily without much volatility and the same amount of demand for the network, then the actual price in ETH would go down, right? Like the two markets to start are decorinated. But because you have DFI, which uses kind of the ETHUASD prices and input, obviously it blurs the, yeah, it blurs the two together. Oh, yeah. There's a word. There's a word for the relationship, but I can't remember it. It might be like, Oh God, it's like reflectively or one of those words, right? Where because this is happening over here, it's like causing this. And so there's like this relationship between them, but they're not actually directly correlated. And the relationships are actually really interesting because you have like the ETH USD price.

With the amount of like wrapped Bitcoin on Ethereum now, you also have like the ETH Bitcoin relationship. And what Tim said is 100% correct in terms of volatility because. you know, all the people who are trying to make moves that that becomes like more and more urgent when there's, you know, a high spike up or spike down. And then you also have to keep in mind with defy, you have things like liquidating loans or arbitrage opportunities or these bots that actually are reacting to certain market conditions. And again, like if the price of ETH is generally stable, your loan isn't going to be liquidated, which means that the arbitraiser aren't going to be doing. doing these two things at one time to try to make money. You don't have like, you know, the bots running around, chasing the loans. You know, all of those things are just not happening.

And so it'll be, you know, it'll be interesting. But another thing that you mind is like the demand for Ethereum technically, usually, right, when we think about markets, it usually means higher demand for Ethereum means that the ETH price does go up as well. So that's like another relationship. And so you just have all of these relationships intertwined. They're not, I don't think any of them are directly correlated, but they do have this like whatever reactionary relationship to one another.

Okay. So now that we've kind of just set the picture of how things work right now and kind of what some of the issues are, let's dive into more details on how EIP 1559 changes how fees are calculated on Ethereum. And we can get more granular now. Okay, I can give like the protocol view, and then I think Taylor can maybe talk through how wallets will actually show us to users. So at a very basic level, 1559 does like three main protocol changes. The first is that it as it removes the, it introduces a new transaction type on Ethereum.

So this is something that's sometimes misunderstood. Legacy transactions like transactions with gas prices will still be possible. they'll still burn Ether behind the scene, but if you're using a wallet or if you are a wallet and you don't want to update, you don't want to support 1559, it's optional, right?

You don't need to actually change the types of transactions you send. But with the EIP, we introduced a new type of transaction, which has a few benefits. And basically, that new type of transaction will not have a gas price,

like the legacy transactions on Ethereum, and instead we'll have two components to the price paid. One is called the Maconet the max fee or maximum fee. And the other one is called the priority fee. In the past, this was called the tip. So if you hear about the tip, they're basically synonymous. And the max fee, like I mentioned earlier, is basically the maximum amount you're willing to pay for your transaction. And the priority fee is the maximum amount you're willing to give a minor for your transaction.

And then, so this is all that changes on the transaction side. On the Ethereum blocks, every block will now have what's called a base fee. And this base fee specifies what's the minimum gas price, basically that a transaction needs to pay to be valid in this block. And so what this means is if you send a transaction with a maximum fee that's lower than the base fee, that transaction is no longer valid. And this is really interesting because today, you know, for example, the gas prices today are roughly 20.

If I send a transaction with one gway, it's not actually invalid, even though it might never be included. And this causes a lot of drag on the system because you can't put like a clear line of like, oh, this transaction in and this transaction is out. So after 1559, we'll have like a really clear view into the transaction pool of, you know, these transactions could actually be in the block

and these could not. And finally, sorry, the last protocol change that we make is blocks go from being, having a fixed size to having a variable size. So right now on Ethereum, we have a gas limit, which is the equivalent of the block limit in Bitcoin, which says, you know, this is the maximum amount of transactions that can go in. And because of demand for the network, blocks are basically always full. So if you're like a wallet or an app developer or, you know, anyone who's kind of interacting with the network,

your default assumption is like there's no room in the block, right? Like everything is always full. What 1559 does is it doubles the block size on Ethereum. and it aims to keep it 50% full. And when blocks are more than 50% full, we simply raise the minimum price until it's back to 50% full again. And if it's less,

we'll simply lower the minimum price to kind of induce demand. So that means that when you're sending a transaction, on average, there's always going to be kind of extra room in the next block to include you as long as you pay this minimum price. And this is like a really nice property

because today, if I send a transaction, you know, say gas prices are 20, I send my transaction and, you know, it just kind of shifts a little bit on me, and it moves to 25, I might end up waiting, you know, five, 10 minutes and not knowing exactly when my transaction, and then I'll speed it up on Metamask because I actually don't want to wait five, ten minutes. Whereas after 1559, I could just say, look, the maximum I'm willing to pay is like 50. So even if the next block, you know, was 20, but it was full, I kind of missed that one,

then maybe the minimum price in the next block is like 23, 24. And then I get included in that one, and I'll get the refund from, you know, like the 50 minus 24. So yeah, at a protocol level, this is basically what it changes. And last thing, as we mentioned earlier, is obviously this transaction fee, so this base fee needs to be paid with Ether directly from the account that's sending the transaction. Yes, that was good.

That was a lot, but that was good. Thanks. And now do you want to talk about it from the Wallow perspective? Yeah, well, I mean, I love that Tim said that from a Wallace perspective, all the blocks of Wall all the time. And yeah, that's our perspective. because when the blocks aren't full,

we don't have to deal with it. Like, we don't get support tickets. I can pay my payroll. Users can just go about their lives. And if the fee estimation isn't perfect, it's fine. It's still included. Everyone's happy. And also people aren't paying as much, right?

And that's also, like, happy users. Whereas when the blocks are full, not only are they paying more, but like if there's like a weird token and you're trying to send in the gas, limit estimation is off for whatever reason. The sobriety of reasons this happens. But then the transaction fails, but you still pay a certain amount for a failed transaction.

And that's like a really bad experience. Back in the ICU days, people would be like, I didn't get into this ICU and I still paid you. You are the devil. And I was like, no, no, that's, it goes to the miners. I'm answering this for free. Sorry. You know, so all of those reasons is why we're so focused on these like high congestion periods because when they're not, when everything's swimming along smoothly, like, we're happy,

users are happy, everyone's happy. And so I think that when I look at the EIP 159, I'm looking at, I think, in time, like normal-ish times, you know, meaning that when either the demand is stable, or sorry, the base fee is stable, it's not increasing, everything's happy, then, yeah, we're all going to be happy. Yay. And so then the question is, okay, so what happens when things are congested? And for wallet, it's another question that we ask ourselves are like, what are the edge cases, right? Because in a world where we're responsible for, like, even a non-phousadial wallet, like, we still have a major impact on what people pay and whether or not their transactions are or are not successful.

And it's like always this balance between educating and showing and giving users a choice versus abstracting everything away. Because if we abstract everything away and then the user doesn't send, the transaction fails, they pay too much, they pay more than they expected. That's actually, that comes back to us. The user never even really had a choice.

And so that's like sort of this big mashup of hard questions that we have to answer in the design process. And that's why I think some of my criticisms of the EIP have been, you know, the writers and stuff have been like, yeah yeah but like 99% of the time Taylor is going to be fine and I'm like but we already are fine

during those times too like I'm worried about these other times and I think outside the outside perspective like people on Twitter watching us are going like I don't you know I don't understand why you're arguing you know like what's going on so that's a little background on like how well it's look at stuff

I think that how we're going to handle it in general like from a very high level, right? Is currently most wallets give you, look at the USD estimate of the transaction fee, and they abstract away both the gas limit and the gas price. And then there's various levels of like advanced mode if the user does want to give input on how much they're willing to pay.

So if they want it to be faster or slower, and that's going to change because the biggest thing is, I think for me personally, the biggest mind shift is moving from speed to priority, which we already have sort of done. Like we've already like, it's like a brain split right now. Like sometimes we're thinking about how fast a transaction is going to be mine versus, you know, what priority it is in the block. But specifically with the CIP, we're thinking a lot more about priority of the transaction.

And that's just, it's interesting that that has also come along with the CIP with everything else. actually like giving the user that, I guess that information or framing it in that way for the user so that they can also have that mindset so that again, they're going to have that education or that information to make the informed decision with the information that only they have. And I think that the UI specifically is probably going to remain, it's going to be like slightly different obviously, but I think that in general, the user is going to be presented with some sort of selector or slider or choice and the sort of the the the transaction fee is going to be displayed in usd and it's going to be a slight estimate i think that now we're probably going to have a range

rather than right now like most like metamask and r u i both show a single value you're going to pay about five dollars and a three cents for this transaction it's probably going to change so that we show you're going to pay between $5.83 and $10.79. And that's that's a whole other question for me, especially because like what, it just changes, right? Like as a user, I can definitely make a choice. Like I am willing to pay $5.83 saying I'm willing to pay between $5.83 and $10. and $0.72 is like a different choice, right?

So we've been going back and forth on like, do we want to give them, just the highest one. But does that actually set them up for failure if they always get like half of that back? Right. So if I send a transaction every single day for a year and I say I'm willing to pay $10 and then I get $5 back, I only end up paying $5, right? And then one day I'm like, yeah, I'm willing to pay $20 because I'm actually willing to pay $10. But the network is congested.

So I actually pay $20, but I wasn't actually willing to pay $20, right? That those are the UX issues. It's like it's just, it's a lot. And yes, it's going to be for the times of high congestion where things are like rapidly scaling up, but they are hard problems to solve. Yeah. And we're going to get it into this more in a moment because there's something that I was wondering about when I was researching this, which is about,

there's this flexible block size, but we have these periods where there can be congestion kind of for a while. And so it's like, well, if you're trying to target this 15 million gas, you know, like what's to stop it from like always maxing out at the 30 and then how do you get back down to the 15 because maybe what? You're just going to have miners that are mining empty blocks for a while or anyway. But let's talk about that right after this word from our sponsors who make this show possible. Do you want to trade gold, currencies, or even bananas on Ethereum? Conjure opens access to the global financial market for Ethereum by allowing for permissionless user-created synthetic assets. Conter allows you to create, borrow, and trade synthetic

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L-A-U-R-A. The link is in the description. Back to my conversation with Taylor and Tim. So I kind of asked the question right before the handbreak. But yeah, can you just talk about this flexible block size? And, you know, because like I just had the founder of Polygon on my show and he was saying, oh, even when ETH II is adopted, we imagine it'll get full very quickly. And so there will still be a need for Polygon. And so I was just like, yeah, that's probably true. So how are you going to, yeah, keep this average block.

So I think here it's helpful to like differentiate between like the long term average and like the short term spikes. And to answer your question, you know, it's like why won't blocks just before? forever. The short answer there is it's the speed at which this base fee increases. Right. So right now, the base fee increases. If you have a full block, it goes up by 12.5% in the next block. And that takes roughly five minutes to 10x. And it's exponential after that. So it means in 10 minutes, the gas prices are up 100x. And in 15 minutes of full blocks, gas prices are up 1,000x. And just to put this in context, and like the entire history of Ethereum, we've seen roughly 1,000x variance in gas. prices, like from the very start up to now, and that's kind of an upper range.

So that means that in practice, it would be like extremely rare to see like something like 15 minutes at full blocks because at some price, people are just not willing to pay, right? So what happens is, you know, prices is 20 guay and then it goes up to like 50, 100, 250, whatever, 500 guay. At 500 guay, nobody's willing to pay the base fee or, you know, less people than half the block are. So then the gas prices start coming back slow again. And, you know, it reaches kind of this equilibrium again where like what's the price at which, you know, there's about 15 million gas worth of demand. And one thing that's nice about that is it means this kind of spike in usage is processed twice as quick as it would be today.

Because for like this short period of time where there's a bunch of people willing to pay super high fees, we have blocks that are twice the size as they are. But if you look over kind of a long-term average, you're not going to have, you know, you might have a lot of these small spikes, but you won't just see like some major spike forever because, you know, I think I calculated, but after like something like, to fill something like a hundred or two hundred blocks, you're burning like a hundred thousand Eth, right, in terms of transaction fees. So it's just the speed at which this basically increases, limits how long these spikes can last. Yeah. Okay. Yeah. So basically at a certain point, it'll

only be whales who will be transacting. And at some point, well, at some point, you know, the whales have done their transaction and then, you know, it's back to everybody else. Yeah. Yeah. And that's, by the way, we see this currently, right? Like when the, I mean, the uni AirDrop is one example,

but also on whatever, Black Thursday, Black Tuesday, whatever it was, March 12th when the whole world collapsed or whatever and Maker collapsed. And the, you know, there was this change. reaction of all these things that happened from the real world to the crypto world to the Bitcoin world to the ETH world to the Oracle world like everyone was impacted um and we saw such high gas prices because there was I mean an insane amount of volatility but also you know an insane amount of money to be made if you were both if you were like going to liquidate something

like you could make money but also like if you want to prevent yourself from being liquidated so everyone was in this boat of like I need this transaction on network now However, you know, in everyone else was like, I'm just going to sit here and not do that. And this is exactly like Uber search pricing, right? Like you were mentioning earlier. It's like getting your Uber on New Year's Eve, basically. Yeah. And you're like, I'll wait.

And then, yeah, I mean, even that period of time, we're not talking about months. We're not even talking about weeks. We're talking about days, you know, in terms of that, that high pricing. So it'll be interesting to see how, I guess, the base fee reacts both upwards and then downwards, right? Because we do talk a lot about how the base fee moves up, but we don't talk about what the conditions are to move the base fee, the base fee go back down, right? Because currently, like, you get up to 500 G-WA, and then black, black whatever happens, and you're at a thousand G-WA and you're dying, and then it comes back down naturally. Now that's actually at a protocol level as well. So I don't know.

You guys, I mean, the devs and the researchers, they're very confident in this. So I have faith in them. But I don't personally understand it. Yeah. So I guess just to touch on that, the base sheet, basically, the way it goes up or down is if a block is empty, it's down 12.5%. If a block is full, it's up 12.5%. And it's a linear curve. If you are very mat-savvy, you will realize that that means it comes down a bit slower than it goes up.

because just how fractions work. And that's like a small edge case where we'll probably change that in a future iteration of 1559. But it doesn't change like the fundamental design where imagine you get to a spot where like, you know, you've processed these thousand-gway transactions, then the next block might be 25% full, right, rather than 50 with like 800-Gai transactions. And so these transactions will, you know, get into that next block and then the fee will lower again. and then maybe you're doing like the 600-gway transactions and kind of clearing your backlog that way

until you're back to like this, you know, the kind of normal equilibrium of whatever the gas price was before that surge. And I think I've been like roughly tracking them. This is not like super data driven, but it feels to me like about once a quarter, we have like these kind of, you can't really call them Black Swan because they're so frequent,

but like these events where like everybody needs to transact on chain right now, that seems to be roughly the frequency. So in the absolute worst case, it's also worth noting that when everybody's trying to outcompete each other to get their transaction in in these crazy periods, that's basically the system we have today, right? Where today, all the time in every block, people are trying to outcompete each other to get included in this limited block size. So the part that I sympathize a lot with wallets is they need to keep supporting both forever because, like he said, Taylor, like this 1% is really important. But from the end users perspective, it's like the average case today becomes kind of their worst case, one percent of the time. And then whenever that's not the case, the system is as much simpler and has better guarantees around inclusion.

Yeah, exactly. And I think that one thing to point out from me, a wallet's perspective, is that initially I was sort of looking at it like, okay, we need to, I guess, like build a system that addresses, that like gives the user this this transaction fee range that's going to be like obviously accurate in all conditions all the time. And you have, you know, periods where it's stable. You have periods going up. You have periods going down. And how do we create the system and stuff like that? But one thing that I guess I've sort of changed is we need to like really, I guess, drill into the user's needs, right?

Letting the user say what priority that they want their transaction to. to be included at and giving them some semblance of an approximate price in probably denominated in USDA so that they understand how much they're going to be paying for this so they can make that informed decision. And then we or the network have the information of how congested the network is, what the current base fee is, what we can look at the priority, the tips. We can look at those as well and see what they've been either over a period of blocks, like the last 50 blocks or the last 5,000 blocks or the last one block, however we want to calculate it.

Right now, it's all the same, right? So right now we look and however people are estimating the gas price, they're looking at the past and they're gas estimating what the inclusion will be for the next block all the time. And so there's basically just this one scenario. What we're looking at now is, okay, there's not one scenario anymore. There's not a one size fits all. We only should give them this very high price range, right? The $5 to $10 or the $50 to $100 in those periods of uncertainty.

We don't have to give it to them all the time. And that's one of the things that I think a lot of people, if they have experience, like on the wallet side or even if they're like an exchange, right, if they're sending transactions on other people's behalf, that's a huge mind shift. Like, it really is a huge mind shift. I guess like the range of the information that you're giving the user is tighter. It's actually directly correlated or should be directly correlated with the like the volatility of the base fear, the priority fees or the network, however you want to look at it.

And so again, if everything's generally okay with the network, everything is generally stable, we can potentially give them at still like about $5 fee. And that will be like the 99% of the time. And then catching those edge cases and the 1% probably like, I mean, if it was me, right, I would be like, hey, think twice before you do this because like stuff's blowing up and you might pay $50 or you might pay $100. We don't really know. Good luck. you know and and especially for that first black swan event right just be like that would be hilarious but actually one thing I wanted to ask about was you know earlier I mentioned the transition at Ethereum 2.0

which obviously is an actual scaling solution and so you know is meant to address the congestion issue so between the two you know when we have because we'll have 1559 first and then we'll move to Ethereum 2.10, between the two, you know, this kind of like greater efficiency and fees and then improve scalability. Do you think that maybe that will reduce a number of these kind of times when there's just like high congestion, these quasi black swans? Yeah, what's your prediction for, you know, what it will look like when the two are both adopted? So I think the black swans are actually going to continue on or the frequency of the black swans is going to change not. because of like ETH2 or because of this EIP or anything, it's going to change just in general

over time as Ethereum as a network matures. So E2 is obviously part of that, but it's more about the maturity of the network. And, you know, we've seen this a bit with Bitcoin and you've seen, I'm sure, like the when people talk about like the need for stable coins and the fact that Bitcoin is worth this because it's volatile and you can never buy coffee with it and those types of arguments, I think that that over time, it starts off very volatile, and then over time we're going to see that curve sort of flattened. That's probably going to be, in my opinion, the biggest change with both the frequency and whether we're talking about a thousand X volatility or 100 X volatility. Yeah, just probably time and maturity.

Wait, I'm sorry. So you're saying that because you think the price of ETH will go up, then we'll face other kinds of criticism. Is that what you're saying? No, no, I'm just saying that the. the vault like e2 isn't going to probably directly impact the the frequency of black swans. It's just the fact that Ethereum as it becomes more mature, it becomes less volatile. So then there will be less frequent black swans. And and when a black swan does happen, it's less.

It's like just less, right? We're not going to, we're probably, in my opinion, we're probably never going to see another March 12th again. Right? Because it's just right now they say it's going to happen tomorrow. So. And Tim. Famous last words. But yeah.

And I'm very, I'm very interested to see how E2 does impact over the long term, right? Over like the year time period rather than the minute time period. Because I think that with this, both this EIP and with ETH too, in the short term, we will see everything will be happy for a short period of time, right? there will be enough room in the blocks. That's how these things typically work. We saw it a little bit with, when we increased the max block size,

everything was happy for like a week. It was really cool for like a week. And Tim, I cut you off really. What were you going to say? Yeah, I suspect we'll probably have more and more like localized black songs, if that makes sense. So the main way that we're actually scaling computation in like the next one to three years is like through roll-ups, right?

And we're already seeing some go live. You've seen also these side chain solutions like Polygon. So what I suspect is going to happen is that's more and more activity moves to stuff like roll-ups, stuff like Polygon. You might see these Black Swans like on this specific roll-up, right? Like where, you know, I don't know, maybe on Polygon something happens. And there might be some cases where like it happens across the entire ecosystem. Like, you know, you saw like the March 20 where like there's just a crash across everything.

So, you know, that'll be like a mega one. but I wouldn't be surprised if you just see like these kind of micro black swans or something happen on different, you know, roll-ups at different times just because the arbitrage opportunities are different stuff like that. And that kind of leads the main chain to operate a bit more smoothly. Yeah, so that would be my prediction. I still suspect, though, like, you know, we're nowhere near to like smooth sailing at least for the next couple of years.

Like there will be, you know, some other stuff. Like, there will be things that happen that just create huge volatility in crypto. And, you know, that's kind of part of the space we work in. So as we mentioned before, EIP-1559 will also change ETH's monetary policy because since those base fees will be burned, that leads the potential for ETHs to become deflationary, which, you know, I mean, if people are familiar with Bitcoin should lead to the price going up as adoption increases. So one thing that I've, you know, kind of heard about a little bit is that they're rumblings that, you know, minors aren't super excited about this because that will at least

reduce kind of in absolute terms, the amount that they'll take home in ETH. But I just wonder, you know, I don't know if there have been any studies done on this, but given that the dollar value may rise in conjunction, how do you expect that this will actually impact minor revenue and and we'll say in dollars. Yeah, I can take that one. I've spent a lot of time talking with miners. Miners have a lot of variability in their business model, you know, outside of 1559, right? Like the first one you just mentioned is like the eighth USD price, right?

Like if they mine two eighth worth $4,000 versus worth $2,000 versus worth $1,000, their expenses are like electricity and machines that they pay with fiat. So that has a big impact. the second big factor is hash rate. So how many other miners are there? So they can maintain all of their cost fixed. The price of E can stay fixed. But if more people mine, then it becomes more competitive and their odds of getting a block drop.

So their revenue is also effectively lowered. And then the third part of that's kind of variable in their income is transaction fees. And you can think about like two classes of transaction fees. like the general fees that everybody pays. And there's fees for arbitrage opportunities, people call up MEV, minor extractable value. So this is the fee that like people are willing to pay for the top arbitrage opportunities on Ethereum.

After 1559, obviously, you know, we're not going to change anything with regards to the hash rate. So that variable is kind of out of our control. The ETSUSD price, I think, is very hard to speculate on. So even though, you know, a lot of people make the argument that like 1559 reduces the supply with every transaction. And so if you have the same supply, or if you have a smaller supply,

the same market cap, the price should go up. Like, yes, that's true, but that's true if you consider like no other factors affect the price of ether. And, you know, that's just like not true in practice, right? There's so many things that have a much greater impact. I'm not saying, you know, like 15509 will be like negative for the price or, you know, positive, but it's like 1559 over the long run burns. part of the supply, but in two months,

there's, or like on any short time frame, there's a thousand things that can happen that impact the ETH price, you know, to a much greater extent. And lastly, one thing that's worth mentioning is miners are paid to secure the network, right? Like, that's kind of the whole point. They should not necessarily get more or less money based on how many people want to transact, because the security needs of the network do not change based on that, right? In practice, they change a bit, and they will, even after 1559, get slightly more money when more people want to transact.

But there's no reason for them to get all of that surplus, right? So with all that being said, it's kind of hard to estimate exactly how much 1559 will impact minor revenue, because first of all, like transaction fees on the network are very volatile. Right. Like if we would have had this podcast three months ago, gas prices were like 500 go away. And then, you know, and at that point, transaction fees were actually higher on average. and block rewards for the miners. So miners were upset because they were like, well, you're taking away half for revenue, right?

Today, gas prices are like 20 gway, and so transaction fees are back to like a small subset of the block value. And it's worth noting, again, it's not all of the transaction fees that will be burnt because people who still want to have arbitrage opportunities, so who are competing for like a specific slot in the block, they'll still want to pay the miner a lot of money to get that slot.

And the burn in 1559 doesn't change that. So there's been different estimates done. They vary from 25% of transaction fees burnt to 75%. So it's extremely hard to tell you like this, this is how much exactly we'll see burnt. It is like a pretty volatile industry to be mining. And sorry, one final comment is it's worth noting also for miners, if there's some listening, mining will also be ending on Ethereum pretty soon, right? Like we are moving to proof of stake.

you know, the most optimistic people are targeting the end of the year, maybe more realistic is like early next year. Worst case is probably, you know, I don't know, mid next year, kind of everything goes wrong and we need to fix a bunch of things. There's not really a world where there's like proof of work for, you know, call it more than a year in the most optimistic case on Ethereum. And that also factors it on than like miners' decisions to buy equipment and to get started. Yeah.

I mean, I've heard like some rumblings that miners might try to keep EIP-1559 from being adopted, but does that look like a likely scenario to you at all? So I haven't seen any kind of proposal to like, you know, fork Ethereum when the London upgrade happens. You know, if miners are part of the community wants to do that, like it's their right, like, you know, that's kind of what's nice about blockchains. I think one part here that's really important, though, is the power that all of the Ethereum community has to coordinate around what they want to call Ethereum. Because a lot of basically any project that relies on anything off-chain needs to target a specific fork when that happens, right? Like the most obvious example is stuff like Fiat collateralized stable coins, right?

If there's a fork on Ethereum, your USDC in a bank account, like dollars that back to USDC do not double. So they need to say this is where it's valid. Any project that uses just an ethusd price from an Oracle also needs to say what's the price that we're looking at. And even things like, you know, the beacon chain deposit contract, right? Like the beacon chain follows one chain to credit that ether back onto the beacon chain. And so they also need to decide which fork they follows. And so I think this is something where, look, you know, core developers are obviously putting this upgrade out. As I see it, there's like tremendous support in the community. And it seems like all those projects.

will rally around that fork. And if minors or another group wants to start their own competing fork, like they're free to, and then at that point it becomes, you know, all these actors that need to coordinate about what they want to support. Yeah. Yeah. Yeah.

To be clear, I'm not aware of such a fork being planned. No, yeah. Yeah. It's not as easy as it used to be. I just say it like that. But it is because I guess one of the things that that looking back at like the the the the the the hard fork that I realized now that I didn't at the time was um it was relatively easy to not you know the coordination is one aspect of it but like you know tell

everyone uh that they're going to double their money right you're going to have two chains or even 1.5 their money or even maybe 1.2x their money like that's a pretty promising promise for a lot of people um especially you know exchanges and stuff um but within this, the risk is much higher because if you happen to be on the other side of the fork, I mean, just the defy stuff, the stable coins, the interactions between one thing and another. And even if we remove all of that, you still have, like everyone right now is still battling for liquidity on one chain, right? Like you have all these incentives, you have subsidized rewarding, you have, you just have all

of these different things. And if there was a hard fork, you would now have all of that plus, like, times two. You know what I mean? So it's just the amount of complexity and then the amount of risks to actually lose money because you're, you're not going to two extra money. You're not going to one point two extra money. You might lose your money because this might happen or that might happen or this thing that's interacting with USC here, but USC is on the other chain. Like it's just, there's so many unknowns. I honestly, at this point, think that Ethereum is, it's not unforkable, but like, it's, I don't think there's a, there's a scenario where you can have like a true, like chain split like we did in 2016. I really don't think so. It didn't. Yeah. Especially because

of composability and defy, like so many things would break on that side. So. Yeah, I have a, I guess, I don't maybe controversial. Yeah. I think that's like, that's a good thing. Like, if you are going to support a fork of Ethereum, I don't think it should be easy to just fork the network because you see that it has like a high potential for scams, right? And we see this with Bitcoin now more than Ethereum, fungly enough. Like in 2017, it was, you know, kind of the opposite criticism.

But like, it's very easy to fork Bitcoin because it's just a set of UTXOs. So you have Bitcoin gold, Bitcoin silver and whatnot. And people can just fork that to infinity. And they can like profit off newcomers to the space saying like, oh, this is a real Bitcoin or the better. Bitcoin, like the green Bitcoin, and, you know, like, then retail gets dumped on by those projects. I think, you know, if you want to fork Ethereum, because you have like a legit disagreement, you know, with it, I think that's fine. But being able to support sort of a defy collapse or like,

you know, having a migration path for it, to me seems like one of the many problems you will need to deal with in like, you know, the next five to 10 years of supporting your fork. And, like, if you can't even handle that, I don't see how your fork is going to be long-term legitimate. Obviously, there is a much higher bar for forking, but I think it's because the stakes are much higher and that sort of protects

newcomers in the space to some extent where there's not like a different fork of Ethereum every day. Yeah, so that's Yeah. Really good comments. So another issue that muddies this aspect of what it is that miners

will earn is what's called minor extractable value or MEP. And this is value that miners can earn, but they do it by reordering or censoring transactions on the blockchain. So how do you expect MEP to affect minor behavior once EIP-1559 is adopted? Yeah. So just like as a little bit of background, the reason that we have, I guess, MEP is a thing and specifically a thing on Ethereum and not so much on other networks is because the miners can actually get, well, the people that are using Ethereum and using these defy protocols and using these tokens, there's this like additional layer of value. And the risk and the value are very, both of them are very, very high when you

have these layers of interoperability and defy and just all of the different pieces working together. And so what MEV is is basically someone kind of side channeling or back channeling a payment to the minor that isn't necessarily attached their transaction in the traditional way. And the reason that everyone sort of gains from this relationship is because a lot of the positions that people are entering into or getting out of or arbitraging or whatever they're doing, they have scenarios where they, like only want this thing to be mined under this condition. They only want it mined in this next block, but if it's not in the next block, they don't want it to be mined, things like that. And so because there's this whole new world with Defi,

they can actually give a higher payment to the minor in returns for sort of these additional assurances, which both increases their revenue because they can actually, you know, make these things happen. but also it decreases their risk. And so if you are like, if you look at arbitrage as a business, you do want to reduce your risk.

And, you know, having a transaction fail when gas prices or transaction fees in general are super high, that's a risk and that reduces your revenue, which reduces your profits and so on. So EIP-1559 does affect this. Tim, do you have insight on how it might affect it?

Yeah. So I think, you know, MV could be a whole topic for a whole show. So we'll dive into that too much. But the main intersection with 1559 is how much should you pay minors to include non-MV transactions? So at the way beginning, you know, we talked about how you have your maximum fee and your priority fee or your tip that goes to the minor. The obvious reason for the priority fee is that if you burnt 100% of the transaction fees,

miners would just mine empty blocks forever, right? Why would they even bother to try and process your transaction to run a node? They could just mine empty blocks. They're not making more money and they reduce their cost. So in times when there's not huge congestions, you want the priority fee that goes to the miner to be just high enough to pay for one, like their operational costs of actually maintaining the transaction pool, but two, the risk of their block being uncalled. So on Ethereum, because block times are shorter than Bitcoin, it happens fairly.

frequently that two blocks are mined pretty close in time, and then, you know, the chain for a short amount of time. And then when the next block hits, it will decide which of those two blocks was the right one. And the one that isn't in the canonical chain is what we call uncalled. And I mean those transactions don't get executed, and the miners get like a much smaller reward. And because of that, miners want to push their blocks as quickly as possible on the network, right? Because once you have a new block, you want to give it to everybody so that they mine on top of you and you don't get uncalled. And the size of the block matters here, because pushing a bigger block is harder than pushing a smaller block on the network. The more transactions

you're going to fit into a block, the more you're going to want, you know, the more for the miner, they need to be paid a lot for that because they risk losing it all if the block is too big. And where this intersects with MEV is because like Taylor was saying, a lot of these MEV transactions are time sensitive and very high value. People will be willing to pay the miner a lot of money, but only if this transaction happens now and it's included in the canonical chain. So that means that MEV kind of changes the basically the uncle risk for minors, like how bad is it for your block to not be on chain. Because without MEV, it was just a function of the block reward, right?

Like, you get a smaller block reward if you're not included in the main chain. And it's very easy to calculate, you know, how many, how frequent are uncles based on the size, you know, what's the block reward for uncles? And so what should the minimum tip be to kind of offset that risk? Because MEV is variable, right? Like sometimes there's just more opportunities for arbitrage and sometimes not. it gets a bit trickier to figure out, like, what's the minimum tip that you should give? We've come up, I say, credit goes to Barnaby from the Ethereum Foundation.

I did not do anything in this. So Barnaby has come up with basically a fancy algorithm that looks at like, okay, what's the average MEP in a block? You know, what's like kind of the 90th percentile MEP in a block? And based on that and based on how big blocks are, what's like the right default priority fee that you should put in your transaction. And it's kind of a long way of saying that over time, we're probably going to have to adjust what's the minimum or the default priority fee based on the amount of MEV that miners are able to extract. So that's, you know, it's not, once you have the formula for how to do it, it's not hard. You just plug kind of the numbers. But it was a bit of work to actually kind

of derive what's the right amount that we should compensate miners so that when they have transaction, M-EV transactions in the block, they don't just ignore everything else. Yeah, yeah, and this goes to what we were saying earlier about how we don't really know how much this will affect what miners can earn because of, yeah, we're not sure exactly how much will be burned of the base fee.

All right, so last topic, and by the way, this also could be its own show. And for those of you who listen to a lot of crypto podcasts, I'm sure you will know that it is often its own show. but we will just touch on it very briefly. A lot of people are talking about how EIP-559 and Ethereum 2.0 could turn ETH into what they're calling sound money. And what's interesting is, as I'm sure you're all well aware, for pretty much all of its history, Ethereum's issuance has always been higher than Bitcoin's. And it looks like that might change after EIP-1559.

So can both of you talk a little bit about how you think this will change, the perception of ETH as money? I think the most interesting thing about this, this ETH as money or ETH as sound money or ultra-sum money or whatever, that narrative. I think the most interesting thing about it is that historically, yeah, Bitcoin, has sort of looked down on Eith as not sound money whatsoever because not only has the issue in order it's been kind of unknown, right? we can just hard work and change it whenever we want and,

um, et cetera, et cetera, that's been the perception. The fact that this narrative is taken off makes total sense in that regard. Because when you're constantly being attacked, uh, for a personality trait,

let's call it, if you then like can change it, that's like it's, you know, it's a really valid argument's really bad, valid like slap back. Uh, and then to couple that with the fact that we might actually do,

better than Bitcoin. Yeah, it makes sense why the narrative, especially on place like Twitter, is taking off. All that said, I think that what people lose sight of a bit is the fact that like these Twitter wars or Twitter drama or like eighth first Bitcoin or whatever, like that's still going to exist. You know, that's how arguments on the internet work. It doesn't matter if we have a valid response to the Bitcoin maxis. They're still going to find something wrong with Ethereum. That's works. So it'll, I guess what I'm watching carefully is how, like, I'm more interested in how the, the Bitcoin maximalist argument involved in response to this, because for me personally, I'm more interested in the narratives and the people and the interactions than whether or not

any of this is actually money, because I think, I think everyone has a chance to, like, I think both Bitcoin and Heath have a chance to be money in the future, both are well on their way. We are not there yet. As much as we want to be, we are not there yet. That's interesting. I actually think they both are money in the sense that people accept them and they have value. But anyway, all right, Tim, what about you? Yeah. Maybe I can take a minute to talk about like the numbers behind why people say, you know, or why this like ultrasound money means exists. So the idea is like right now the block reward on ETH is two ETH per block. I think if you look at the number of blocks per day, I think it was 13,000, 14,000 ETH per day. It changes a bit based on the YonCold

rewards, but you know, call it like, say, 15,000 if you wanted a high round number. It's obviously a very, you know, high issuance rate, higher than Bitcoin. And as of today, you know, it's basically only inflation, right? Like, we have no deflationary mechanism in Ethereum. So 1559, like we've talked about at length, will burn the base fee part of the transaction fee. And that's worth clarifying it doesn't burn the whole fee. You know, the part that goes to the miners is not burned. So if, you know, depending on the breakdown there, that obviously changes the models a lot. But as, you know, part of the transaction fees get burned, it does add like a deflationary pressure that offsets this issuance that we have.

So on proof of work, I calculated these numbers a couple weeks ago. it might not be 100% right, but roughly right. I think a base fee of roughly 150 Guay for a 15 million gas block would offset basically the two-eath issuance in that block. So that means that if we saw, you know, consistently that the base fee was, you know, 150 guay and we kept the same issuance on proof of work, then, you know, on average, it would be deflationary. And in practice, that might vary, right?

Like maybe there's a block where like it goes up higher and like that block is deflationary and you can choose whatever time period you want to do that analysis. But that's based on the fact that issuance is quite high because of proof of work. When we move to proof of stake and on the beacon chain today, issuance is drastically reduced. I forget the numbers exactly again, but they're roughly somewhere between one eight, one-eighth and one-tent, even if you assume that there's way more people that stake after the merge. So that means that instead of needing your base fee of 150 to be deflationary, you're probably looking at like needing a base fee of closer to like 15 way to be deflationary.

And so when people kind of say like this ultrasound money narrative, this is kind of what they mean. It's like on one hand, we're going to reduce the issuance a lot by shutting down proof of work. And then on the other hand, we're going to have this deflationary pressure that comes from EIP 1559. That's kind of a narrative. And, you know, like people like to use it in kind of the conversations against Bitcoins as Taylor mentioned. But yeah, I think it's just worth looking at the numbers, it's worth mentioning, you know, 1559 does not make ether deflationary, like, kind of just by snapping his fingers, like, you know, you need some certain level of demand. And personally, I think, you know, what is really valuable is that over the long term,

if more people want to use Ethereum, then yes, it does create kind of this pressure on the supply. And again, if you think about, like, how Ethereum should work, like, if you knew nothing about Ethereum, like, it would make sense to think, like, as more people want to use Ethereum, there should be some way for like the network to capture that value, right? And that's kind of what 1559 gives. It doesn't capture 100% of it. A lot of it will still go to miners, the validators and whatnot. But it captures kind of, you know, some portion that means that over the long term,

like it's kind of healthy that, you know, the network can, yeah, can capture that. And sorry, one final comment here is worth noting like people talking on about the East Price and whatnot. And one way to think about the East price. is also like the network value of Ethereum is kind of the economic bandwidth we have on the network. And because ETH is used as collateral and to fund stuff, you know, the higher the network value, it means, you know, more of the more ETH, more EASD value ETH can be used, you know, the open loans on DFI to fund projects and stuff like that. So I think beyond like, you know, just the fact

that obviously the price appreciation is nice for holders, it's worth noting that like as the total value of Ethereum goes up, we can just support more. more things on the network. And that's a really valuable property. Yeah. Yeah. Yeah. I agree with all of that.

And I find it the fact that you kind of reverted to more like facts, I find that somehow very Ethereum foundation-ish. Because I'm sure you're well aware of that, you know, for a long time they, and I'm not sure how it is now, but for a long time there were edicts against talking about price too much. So, all right, so when will EIP-1559 be adopted? We are June 23rd as we're recording this. 15th, 9 will go live on Robson today.

So by the time people hear this podcast, it will already be live on Robston. Then it's going to go live on Gort. Yeah, Robson is the proof of work test net for Ethereum. Then it will go live on Gordy, which is the proof of authority, multi-client test net for Ethereum on June 30th. And then it will go live on Rinkabee, which is our third test net on July 7th. Because this is such a big change, we want to wait and see how it goes for test nets before we schedule a date for Mainnet. If I had the guess right now, I suspect late July to mid-August is kind of the range we're looking at for deployment on Mainnet.

I don't see a case where it's earlier than late July. If we found an issue and whatnot, it might be delayed a few weeks, the time that we fix it. but, you know, yeah, late July, August is when we're looking at it. All right. Well, thank you both so much for discussing this issue. I know it's been hot topic around crypto Twitter and elsewhere. Where can people learn more about each of you and EIP 1559? Yeah, you can find me on Twitter.

I'm God. I'm Tayvano, T-A-Y-V-A-N-O, and then an underscore at the end, because I need to change that. Um, that's the, the best place find me or at My Crypto. Um, my product is Mycrypto.com. Uh, and I love Twitter. So definitely find me on Twitter. Um, and Tim's going to give you a bunch of resources, but I will say the best 1559 resource of all the resources is actually this one called the EIP 1559 resources list, which then has all

of the other resources linked to it. Um, maybe we can link it in the show notes or something. That's a great idea. Yeah, I'm on Twitter as well. Tim Beko, so at T-I-M-B-E-I-K-O. So if you have any questions or concerns about 1559, you can reach me there. Yeah, I do have this HICMD document, which is a list of different 1559 resources. So just some intro materials if people want to learn about it.

If you're, there's sections about minors, about U-X, about econ. So whatever kind of part you're interested in, there should be something there for you. So yeah, we can definitely add that to the show notes. Perfect. Well, it's been so great having you both on Unchained. Thank you so much. Thanks for having me. Awesome.

Thanks, guys. Have a good one. Thanks so much for joining us today. To learn more about Taylor, Tim, and EIP-1559, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Daniel Ness, and Mark Murdoch. Thanks for listening.