What is an EIP (Ethereum Improvement Proposal)?

Introduction

In Ethereum, every new feature or improvement is proposed in the form of EIP, which will be implemented by all miners. This article will give you an in-depth understanding of what an EIP is and what role EIPs play in the development of Ethereum.

The Ethereum ecosystem has attracted a large number of users. Although its high gas fees and congested network are often criticized, it has always been the preferred public chain for Dapps due to its safe, stable, and innovative system. Rome was not built in a day. Similarly, Ethereum has undergone various upgrades since its inception. These upgrade and improvement proposals need to reach an overall consensus in the Ethereum community in the form of EIP before they can be finally implemented.

Definition of EIP

Ethereum Improvement Proposals (EIPs) describe standards for the Ethereum platform. Some EIPs call for adding new features on Ethereum while others aim to optimize certain processes on Ethereum.

The Ethereum Project Management repository was created in October 2015. All Ethereum upgrades can be traced back to EIPs.

All EIPs have the goal of enhancing the current Ethereum network. EIP authors need to provide the rationale and technical standards for implementing. The final adoption of a proposal requires peer review and consensus within the community.

Ethereum’s EIP model follows the example of Bitcoin’s BIP model (Bitcoin Improvements Proposals), which is used to efficiently meet the needs for upgrades and improvements under decentralized governance, and to promote usability by introducing new applications.

EIP Types

EIPs can be divided into 3 main categories, namely Standard Track, Meta, and Informational.
Standard Track

Standard Track EIPs are the ones that will have an impact on most or all Ethereum implementations, such as a change to the network protocol, a change in block or transaction validity rules, proposed application standards/conventions, or any change or addition that affects the interoperability of applications using Ethereum. Furthermore Standard EIPs can be broken down into the following categories.

Core: Improvements requiring a consensus fork (e.g. EIP-5, EIP-101), as well as changes that are not necessarily critical but may be relevant to “core dev”, or example, EIP-1559 which aims to improve the gas fee structure and requires a hard fork to achieve.

Networking: Improvements around devp2p and Light Ethereum Subprotocol, as well as proposed improvements to network protocol specifications of whisper and swarm. For example, EIP-2124 aims to reduce the costs generated from using transaction data.

Interface: Improvements around client API/RPC specifications and standards, and also certain language-level standards (method names and contract ABIs), for example, EIP-695 which defined the eth_chainId method.

ERC: Application-level standards and conventions, including contract standards (such as token standards), name registries, URI schemes, library/package formats, and wallet formats, such as the well-known ERC-20 and ERC-721.

Meta
Meta EIPs describe a process surrounding Ethereum or proposes a change to (or an event in) a process. Process EIPs are like Standards Track EIPs but apply to areas other than the Ethereum protocol itself. They may propose an implementation, but not to Ethereum’s codebase

Meta proposals often require community consensus and are more than just recommendations. Therefore, users are typically not free to ignore them. Examples include procedures, guidelines, changes to the decision-making process, and changes to the tools or environment used in Ethereum development. Any meta-EIP is also considered a Process EIP.

Informational
Informational EIPs describe Ethereum design issues, or provide general guidelines or information to the Ethereum community, but do not propose a new feature. Informational EIPs do not necessarily represent community consensus or a recommendation, so users and implementers are free to ignore Informational EIPs or follow their advice.

EIP Statuses

Anyone can initiate an EIP. Before putting an idea into action, the author first needs to discuss it within the Ethereum community to avoid creating a proposal that already exists.

After an idea is discussed and approved in the community, the author can start creating the draft. Then developers and editors will be invited to peer review the EIP. Authors should try their best to convince the community to adopt their EIPs.

EIPs will enter “Last Call” after peer review. Last call usually lasts only 14 days. During this period, if an EIP still needs to be modified, it will return to “Review” status. EIPs that have passed “Last Call” will be marked as “Final”.

For EIPs in “Draft”, “Review”, or “Last Call”, the author can still choose to withdraw the proposed EIP and it will then be marked as “Withdrawn”.

If an EIP in “Draft”, “Review”, or “Last Call” is inactive for 6 months without being withdrawn, it will be marked as “Stagnant”.

“Living” proposals (such as EIP-1) are the ones that need to be continually updated and not reach finality.

Famous EIPs

EIP-20

EIP-20 was created in November 2015 by two authors, Fabian Vogelsteller and Vitalik Buterin. The proposal specifies the implementation standards for ERC-20 tokens, and allows users to issue their own tokens on Ethereum based on this set of standards.

ERC-20 tokens have basic functions such as transfer, approve, and balance query (balanceOf). They also have a token name and total supply so that they can be compatible with wallets, exchanges, and various contracts.

As of this writing, there are currently 585,773 different ERC-20 tokens deployed on Ethereum, including the well-known USDT, BNB, UNI, SHIB, etc. ERC-20 tokens are the basis for financing, governance, and the operation of many blockchains, playing a very important role in the Ethereum ecosystem.

EIP-721

EIP-721 proposes a REC-721 standard, the NFT (non-fungible token) standard. EIP-721 is based on EIP-20 and was authored by William Entriken et al. in January 2018.

ERC-20 tokens can be divided into smaller units, and each token is equivalent, while ERC-721 tokens are indivisible and distinguishable. What’s special about ERC-721 tokens is that each token has an owner and metadata. The owner gives the token indivisibility while the metadata makes the token distinguishable.

As of this writing, there are currently 118,438 different ERC-721 tokens deployed on Ethereum. The trading volume of ERC-721 tokens has reached billions of dollars. The most famous ERC-721 projects are CryptoKitties, CryptoPunks, Bored Ape Yacht Club, etc.

EIP-779

EIP-779 is probably one of the most controversial proposals in the history of Ethereum. In June 2016, about 3.6 million ETHs were stolen by hackers who took advantage of the security loopholes of the DAO on Ethereum. The amount of stolen ETHs accounted for 4.4% of the total ETH in circulation at that time. Ethereum, who was only one year old at that time, took a big hit from the attack. As a result, the Ethereum dev team launched EIP-779.

EIP-779 allows all users to withdraw their own ETH from the DAO. Although this helped recover losses for users, some miners believe that this approach goes against decentralization. Once this Pandora’s Box is opened, crypto would lose user’s trust in the future and blockchains’ development will be impeded.

Eventually, on July 20, 2016, the majority of miners agreed to EIP-779, and the hard fork was successful. However, due to the fact that a small number of miners still rejected EIP-779, the Ethereum community divided into two sides, and the Ethereum blockchain into two chains. Miners who supported EIP-779 run the new Ethereum chain, while miners who rejected EIP-779 run the original chain, which was renamed Ethereum Classic and its own version of ETH is called ETC.

EIP-1559

EIP-1559 is also a highly important upgrade in the history of Ethereum. Vitalik Buterin proposed EIP-1599 in 2019, which is set to improve Ethereum’s gas mechanism. This proposal was opposed by a large number of miners but supported by many Ethereum users, especially DeFi users.

Before EIP-1599, all gas fees were paid to miners. Limited by the block capacity, users who want their transactions to be completed as soon as possible must pay high gas fees to incentivize miners. Gas fees were the main source of miners’ income, thus inducing the potential risk of miners collectively driving up their price.

EIP-1599 splits the gas fees into two parts - base fee and priority fee (tip). The basic fee is generated by an algorithm and will be burnt instead of rewarded to miners. The heavier the load of the current block, the higher the base fee for the next block. Tips are paid directly to the miner by the user. The higher the tip, the more willing the miner will be to pack this user’s transaction.

Since the base fee for each block is generated algorithmically, users cannot predict the base fee when initiating a transaction. Therefore, EIP-1599 also introduced a fee cap. Users can set the maximum fee that they are willing to pay. If the basic fee plus the tip is less than the fee cap, and a miner has packed the transaction into the block, the excess fee will be refunded to the user.

The burning of base fees introduced by EIP-1599 can reduce inflation and increase ether’s price. Although EIP-1599 does not necessarily mean a reduction in gas fees for users, it improves user experience by giving users a better understanding of the fees they are paying.

In August 2021, the Ethereum London Hard Fork upgrade was completed, which indicated that the vast majority of miners accepted EIP-1599, and this proposal officially took effect.

Conclusion

With Ethereum being a decentralized network jointly maintained by many participants, it is not easy for consensus to be reached within the community. Each upgrade and EIP may hear different voices, so it becomes particularly important to standardize the process of EIPs being proposed and implemented, and to let more people see the importance of EIPs.

Since the birth of Ethereum in 2015, developers from all over the world have put forward numerous EIPs to help enhance the network. With the network growing bigger and more complex, a standardized EIP process is more important than ever. Each EIP must be reviewed by community members, and a consensus must be reached before the EIP can be approved. It is with the help of methods such as EIPs that Ethereum has been able to establish its status as the top public chain today.