Gate.io Blog Gate.io Blog - Gas Prices, Miners and MEV: Solutions Before Ethereum 2.0

Gate.io Blog - Gas Prices, Miners and MEV: Solutions Before Ethereum 2.0

03 September 10:21

Source: Gate.io

Even before its launch on August 5th, the EIP-1559 has been the source of many debates, uncertainty, and sometimes misunderstanding.

Barely a month has gone by, but we already notice some relevant changes. This would include an increase of ETH’s chain capacity, as the very own Vitalik Buterin mentions on a detailed Reddit post, mainly due to general optimisation on different areas such as a better use of block space (instead of roughly 2% being empty pre-EIP 1559).

The consequences on gas prices, miners or the Ethereum network itself are all very different. The long term effects of the proposal are yet to be seen, particularly regarding the amount of Ether being burned, subsequent deflationary outcome and eventual supply shock.

Much of the discussion surrounding the implementation of the upgrade revolved around gas fees and how they could decrease. However, this could be caused by some confusion about the main objective of the EIP-1559, since it was aiming to reduce the issuance of ether through a base fee burn. In no case this portion of the fee was being reduced from the transaction itself, but decreasing the circulating supply instead. As it may be seen below, the amount of ether burned increases by the day, along with the on-chain activity.

Source: etherscan.io

Besides the positive outcome promised by EIP-1559, many Ethereum users will still be concerned about issues that affect them personally. To be more specific: the dreaded gas prices.

Indeed, currently it is almost accepted as an immutable fact that Ethereum must have high gas fees while it waits for the 2.0 upgrade, which would eventually solve this through solutions like sharding. Meanwhile, the ability for many users to interact with anything related to the Ethereum ecosystem is severely limited, whereas larger players that move substantial amounts of ether might be unfazed by a $100 fee. Perhaps not the ideal situation for an open decentralized network. The increased activity since the EIP-1559 even caused a spike in gas prices, likely because of the NFT craze, further increasing the issue.

Source: etherscan.io

The limitations in terms of scalability or transaction speed in its current form do not allow for other outcomes. Or do they? And are these the only reasons behind the gas prices?

Layer 2 Rollups

Hailed as the solution to Ethereum’s prevailing scalability problems, there are multiple Layer 2 projects aiming to ease the burden of the transaction volume. By adding a side-chain that handles part of the blockchain’s activity, the main layer will become less congested and thus operate in a more streamlined fashion, scaling properly.

Ethereum has been focussing on this aspect for a while, even adjusting their roadmap to make these features a main objective. This technology is still in its early stages and the full rollout is not substantial enough to see an impact on a larger scale. However, there are some rollups already available, providing a substantial improvement in terms of gas prices. An example would be Optimism, which is deployed by Uniswap and accessible by depositing funds through Gateway and then heading over to the popular DEX.

The Gas Comparison feature on Optimism may give us hints on the significance of using rollups to see those gas prices shrink. By verifying a random transaction hash on etherscan, the gas reduction estimation would be more than 10x the original fee. This is an estimate and in no case set in stone, although considering the regular use case for Ethereum transactions, Optimism appears to be an encouraging alternative.

Source: optimism.io

Other choices include Arbitrum, who coincidentally have just announced the deployment of their mainnet (Arbitrum One), open to everyone. Any user that wishes to save some precious ether on their transactions should look into these options.
Seeking to reduce gas fees through other projects is without a doubt a reasonable approach. But are these prices due to lack of scalability? Breaking down some aspects of the gas structure might shed some light.

Miner Extractable Value (MEV)

When submitting a transaction on the Ethereum blockchain, a fee is included to incentivise its inclusion in a block. This responsibility relies on the miners. They can include and validate such transactions, but also reorganize them within a block. As miners have the possibility to profit as much as possible over the gas fee structure, it is not uncommon for some of them to deliberately include, exclude or rearrange the order of transactions to increase their earnings by selecting those with higher rewards. This concept is known as Miner Extractable Value (MEV).

Miners are in a privileged position, where they get to decide which transaction is included in a block, all the while in possession of full information of the network’s activity. This allows miners to place orders that benefit them as they may verify the transactions in queue, effectively front running the operation. This goes hand in hand with back running, where the transactions placed by miners depend on how the users transactions might change market conditions when executed. These actions might also be performed by bots that exploit these situations.

Having access to such a source of information and arbitrary power has grievous consequences on the gas price. Considering the huge activity on Ethereum, it is possible to ensure an endless queue of high transactions so the gas fees appear constantly at higher levels. Regular users that wish to transact will then be forced to comply with the higher prices for reasonable time execution, unknowingly contributing to artificial gas price increases.

Other practices related to MEV could be the fact that blocks on the Ethereum chain are not used at full capacity. As mentioned earlier, one objective of the EIP-1559 is to optimise this feature as it is estimated that 2% (or 130 ETH blocks) were empty per day before the upgrade.

Similar to Layer 2 projects, the community surrounding Ethereum has several initiatives pursuing a reliable solution to MEV. A notable example would be the research group Flashbots, who focus on mitigating the negative aspects of MEV through transparent communication and data presentation, as well as building tools that favour such outcomes.

Source: Medium

Public data displayed include practical websites such as MEV Explore, providing key information to understand the impact of MEV. Since January 2020, the amount extracted is more than $710M. It is revealing to see that after EIP-1559 went live, the total MEV saw a substantial increase with a $15M+ jump between the 16th and 19th of August. Perhaps the concern about decreased miner revenue with the fee burn is less significant when looking into this data.

Source: explore.flashbots.net

There are other available tools to any user that wishes to leave behind exploited trades. Courtesy of Alchemist and the aforementioned Flashbots, the decentralized exchange mistX protects any transaction on the platform, effectively negating front running by not publishing the user’s transaction on a public mempool. Features such as not paying fees in case a transaction fails add another appealing layer to the DEX.

Less useful on a practical level but still relevant to add transparency, the very simple Sandwiched.wtf website will reveal how much of your transaction fees have been victim to front running bots. Just connect a wallet or enter an address to see the unpleasant surprise, if regularly trading on Ethereum.

Moving Forward

These are a few examples of what may be achieved to solve issues plaguing the Ethereum ecosystem. Both Layer 2 rollups and MEV mitigation work on the same objective of easing the availability of using Ethereum and all it offers. Tackling different angles of a broader issue, the tools brought forth allow us to get closer to a truly decentralized and transparent network, rather than a few speculators and malicious actors taking advantage of technical limitations and design.

In no case would these solutions become obsolete with the final implementation of ETH 2.0 and Proof-of-Stake mechanism considering that front running operations may be performed on any consensus, whether they have miners, validators or interfering bots.

However, the EIP-1559 has shown that the road to ETH 2.0 is not obstacle free. Several relevant mining pools opposed the upgrade, threatening a “show of force” by redirecting the hash rate to an opposed pool, hoping to achieve 51%. The EIP eventually went live without noticeable events.

This division could increase when approaching the end of the year, when ETH 2.0 is supposed to go online (note: no guarantees, the final date has been pushed back many times already). All the mining infrastructure surrounding Ethereum would suffer a fatal blow, as the hardware will no longer be required to operate the network. Multiple scenarios might unfold for the mining industry, such as simply shifting from miner to validator. Selling those GPUs and eliminating the demand for such products would certainly benefit other industries, most notably gaming. Moving all the hash power to other Proof of Work crypto coin is another viable move. The originally forked Ethereum Classic will remain Proof of Work, for example.

To conclude, throughout this article we have seen some of the current issues with Ethereum and the readily available solutions by using other layers and applications. As the final switch to v2.0 and its consequences remains to be confirmed, take advantage of what this rich ecosystem offers in the meantime.

*This article only represents the views of observers and does not constitute any investment advice.
*The content of this article is original and the copyright belongs to Gate.io. If you need to reprint, please indicate the author and source, otherwise legal responsibility will be pursued.

Unbox Your Luck and Get a $6666 Prize

Gate.io Blog - Gas Prices, Miners and MEV: Solutions Before Ethereum 2.0

Select language and region

Fiat Currencies