Ethereum London Hard Fork: EIP-1559 now Live – Crypto pump signals for Binance

Key Takeaways

The MEV or Miner Extravagable Value is a way to generate revenue for Ethereum miners in a time of decreased mining revenues.
It is the measure of how much money a mining pool earns when they can reorder blocks. The problem is that it can allow transactions to be rushed and undermines the concept of blockchain immutability.

CoinGecko reports that the London hard fork was live on Thursday. Despite some opposition by miners, EIP-1559 went smoothly. The price of Ether then rose by nearly 4%, to $2800.

“The London Hardfork is one of the most significant upgrades to Ethereum in the history of the network. In our eyes, the upgrade will be viewed as a positive catalyst. It makes the network more usable by making fees more predictable for end users and also creates a new potentially deflationary monetary policy. The biggest outstanding question is around EIP-1559, which radically reduces revenue earned by block producers and therefore potentially reduces the security of Ethereum,” Tushar Jain is the Managing partner of Multicoin Capital. “We expect block producers to make up lost revenue by either capturing more MEV or by joining other networks that help them earn fees in different ways.”

Ethereum: the new reality of miners, MEV and Ethereum

This is known as MEV or Miner Extracted Value. It refers the miners ability to prioritize the Ethereum transactions. It was originally described in the paper “The First Steps to a Decentralized Blockchain” published by Cornell Researchers. “Flash Boys 2.0” The article documented how bots were able to outbid each other on the decentralized exchange network and force their trades into the first position, thereby affecting the market.

Retail traders were critical of Robinhood at the time of its GameStop debacle earlier in the year.

Flashbots, a tracking aggregator of these bots and MEVs they extract, reports that since 2020 miners have been able to mine $725.7 Million in value. DeFi Pulse estimates that the value of DeFi has been locked at just over $73 billion. CoinGecko says the value traded on UniSwap (the best-known DEX) is about $1.7 million per day.

This all comes back to one core issue: miners have to make up for lost revenue because of EIP-1559’s ‘burning’ of transaction fees as a form of rent control on fees and deflation on the Ether money supply. Ultrasound.money reports that since the London Hard Fork launched today more than 2,400 ether, or $6.7million has been consumed.

Ethermine, an opponent of EIP-1559 who was vocal, released in March a specific mining pool software (which accounts for just under 20% of Ethereum’s total hashrate). Ethermine stated that it was doing this to “compensate for the upcoming mining reward reduction caused by the adoption of EIP 1559.

While the threat of a miner coup was played down because of the looming transition to ETH 2 and the move away from miner-intensive proof of work to proof of stake, the problem is all signs point to MEV being something that’s here to stay. Miners will simply be swapped out and replaced with validators — stakeholders that hold a lot of Ether — doing the same.

According to a report from Flashbots, miner rewards will simply be called validator rewards. The name might shift to ‘maximal’ not ‘miner’ extractable value, but the principle will remain.

“MEV could increase the rewards for validators but also create inequalities.” the group wrote.

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