Before delving into the main topic, let's first understand the "incident" that occurred on the Ethereum network on September 27. According to data tracked by OKLink, at 19:10:08 Hong Kong Time on September 27, at block height 13,307,440 on the Ethereum network, a wallet paid a gas fee of 7,676.62 ETH (approximately $23.54 million based on the price quoted on the OKX platform at that time) to transfer $100,000 worth of USDT. The recipient of this transfer was DeversiFi.
Shortly after the incident, DeversiFi tweeted that it was investigating the cause. According to OKLink, the miner who mined the block containing this transaction ranked among the top ten in terms of blocks mined over the past seven days, but their identity remained unconfirmed. By the morning of the 28th, the miner explicitly stated that they would return the 7,626 ETH paid as gas fees due to the user's operational error. Thus, this incident was temporarily resolved.
Through this accidental event, the often-overlooked Ethereum miners have once again come into the spotlight. Let’s take a closer look at how miners' income has changed since the implementation of EIP-1559.
What Are the Income Sources for Ethereum Miners?
To discuss the changes in Ethereum miners' income, it's essential first to understand their primary revenue streams. In the current Ethereum network, which primarily operates on a Proof-of-Work (PoW) consensus mechanism, miners' income can be broken down into three parts:
- Block Rewards: This includes the main chain block reward and uncle block rewards. This portion of income is relatively stable. A new block is generated approximately every 13 seconds, and rewards are distributed based on the network's total hashing power. The mining difficulty is adjusted via a difficulty bomb to control the number of rewards.
- Transaction Fees: These are the fees paid by users conducting transfers or interactions on the Ethereum network to have their transactions included in a block. This has consistently been a significant source of income for Ethereum miners.
- MEV (Miner Extractable Value): This refers to the value miners can extract through their ability to include, exclude, or reorder transactions within the blocks they produce.
Now, let's examine the specific changes in each of these components.
Block Rewards
Before discussing Ethereum's block rewards, it's helpful to understand the concept of the difficulty bomb and the long-term vision of Ethereum co-founder Vitalik Buterin to transition the network from PoW to Proof-of-Stake (PoS). In the same month the Ethereum whitepaper was published, Buterin wrote a blog post about the Slasher PoS consensus algorithm, exploring the future shift from PoW to PoS. In November 2020, he elaborated on the reasons for this transition in an article titled "Why Proof of Stake." Buterin argued that PoS is a superior blockchain security mechanism for three key reasons: it provides higher security at the same cost, offers stronger resistance to 51% attacks, and has lower barriers to entry, promoting greater decentralization.
To facilitate a smoother transition from PoW to PoS with less resistance, the Ethereum development team embedded a piece of code in 2015 that gradually increases mining difficulty, thereby artificially slowing down the rate of Ethereum issuance.
Historical data shows that the difficulty bomb was first triggered around March 2017 at block height 3.7 million. However, due to development delays, the PoS transition wasn't ready. Without intervention, the increasing difficulty would have severely impacted the Ethereum ecosystem. Consequently, developers included EIP-649 in the Byzantine upgrade to delay the difficulty bomb. When the Byzantine upgrade activated at block height 4.37 million in October 2017, the proposal took effect, immediately reducing mining difficulty back to pre-March 2017 levels. Although the difficulty was reset, miners' rewards did not return to their original level because EIP-649 also reduced the block reward from 5 ETH to 3 ETH.
Pulling the timeline forward to the London upgrade in 2021, which included the EIP-1559 proposal, let's examine the current situation. The London upgrade went live on August 5, 2021, Hong Kong Time, at block height 12,965,000. Two key proposals were EIP-1559 and EIP-3554. EIP-3554 delayed the next difficulty bomb until December 2021.
According to statistics from qkl123, since EIP-1559 took effect, the Ethereum network has mined a total of 792,000 ETH, with an average daily reward of approximately 14,400 ETH. Comparing this to the average daily block rewards from the first two quarters of 2021, miners' rewards from block mining have decreased significantly—by more than 50%.
However, when converted to USD value, ignoring the exceptionally high single-day reward in mid-May, Ethereum miners currently receive daily block rewards worth approximately $43 million, which is on par with the average level seen throughout the year.
Transaction Fee Revenue
Historical data from OKLink shows that in the two years following the Ethereum mainnet launch until July 2017, transaction fees constituted less than 1% of miners' income due to low network activity. The rise of smart contracts, particularly during the DeFi summer of 2020 and the subsequent NFT boom, brought a massive influx of users to Ethereum. This not only drove up the cost per transaction but also significantly increased the proportion of fee revenue in miners' income. At its peak in September 2020, fee income accounted for about 75% of miners' revenue.
Recently, as the NFT market entered a correction phase, the contribution of on-chain transaction fees to miners' income has decreased, generally fluctuating between 10% and 30%. Specifically, since the implementation of EIP-1559, the proposal's impact on reducing fees seems limited. For instance, data from OKLink's chain analysis master shows that the average transaction fee on August 5 was about 0.0043 ETH, while on September 29, it was 0.0073 ETH, having peaked at 0.017 ETH during that period.
From a macro perspective, the chart of daily fee income earned by miners shows a trend of fluctuating increase in the nearly two months since EIP-1559 went live. Excluding the base fee portion that is burned, the miner community has netted 107,000 ETH. Although this is a reduction in quantity compared to previous quarters, the deflationary expectations brought by EIP-1559 have been reflected in ETH's price on the secondary market. Consequently, the recent stabilization and recovery of ETH's price have somewhat offset the miners' loss in fee income (when measured in USD).
MEV (Miner Extractable Value)
What is MEV? MEV stands for Miner Extractable Value. It is a measure of the profit miners can gain through their ability to arbitrarily include, exclude, or reorder transactions within the blocks they produce. The concept was first introduced by Phil Daian and others in the 2019 "Flash Boys 2.0" report. It stems from the fact that on-chain transactions on Ethereum first enter the mempool before being packaged into blocks by miners. Miners prioritize transactions offering higher gas fees, and the act of paying a premium for priority processing is known as a "Priority Gas Auction (PGA)."
Although commonly referred to as "Miner Extractable Value," with the explosion of DeFi in 2020, most MEV activities are initiated not only by miners but also by DeFi traders and third-party arbitrage bots executing strategies to capture value. Therefore, a broader term for this is "Maximum Extractable Value."
According to statistics from Flashbots, the extracted MEV value from January 1, 2020, to the present stands at $708 million. The MEV on January 1, 2021, was $165 million, meaning it increased by $543 million in over half a year, a growth rate of 329%. This represents a potential additional income source for miners.
Currently, the extracted MEV flows mainly to two types of participants: 88% of the profits are taken by searchers (or front-runners), while 12% flows to miners in the form of transaction fees. Based on this proportion, Ethereum miners could potentially have nearly $100 million in additional revenue.
Conclusion
Although the EIP-1559 proposal activated in the London upgrade led to the burning of a portion of transaction fees that previously belonged to miners, miners can still earn rewards under EIP-1559 through the priority fee mechanism. Users who are willing to pay a priority fee can have their transactions processed earlier. In fact, the frenzy around NFT trading, particularly the high time-sensitivity demands of minting popular new NFT projects, has led traders to willingly increase priority fees, resulting in substantial earnings for miners in this area. Coupled with the recovery in ETH's price mentioned earlier, this means that from a USD-denominated perspective, Ethereum miners' income has not seen a significant reduction compared to before.
Frequently Asked Questions
What is EIP-1559?
EIP-1559 is a proposal implemented in the Ethereum London hard fork that changed the fee market mechanism. It introduces a base fee that is burned and a priority fee (tip) for miners, aiming to make transaction fees more predictable.
Did EIP-1559 reduce Ethereum transaction fees?
The immediate impact on reducing average transaction fees has been limited. Fees remain highly dependent on network demand, although the new mechanism aims for better fee estimation.
How do Ethereum miners earn MEV?
Miners can earn MEV by capturing value through transaction ordering within blocks, often facilitated by priority gas auctions or directly through strategies like arbitrage, though a significant portion is captured by searchers and bots.
What happens to the burned base fee in EIP-1559?
The base fee portion of every transaction is permanently removed from circulation (burned), creating a deflationary pressure on ETH supply over time.
Has miner revenue decreased since EIP-1559?
When measured in ETH, block rewards and net fee revenue have decreased. However, when valued in USD, the increase in ETH's price and income from priority fees and MEV have largely offset these reductions for many miners.
Can users still incentivize miners for faster transactions after EIP-1559?
Yes, users can pay a priority fee (tip) directly to miners to incentivize faster inclusion and processing of their transactions, especially during periods of high network congestion. 👉 Explore more strategies for efficient transactions