Exploring the Benefits of EIP-3651: Warm COINBASE in the Shanghai Ethereum Hardfork

The Shanghai Ethereum Hardfork is approaching, and if you read my previous article, you should know what improvements to expect. We’ll look into one today: EIP-3651: Warm COINBASE.

The COINBASE used here is a homograph to the popular Coinbase exchange we know, so it’s different. The Coinbase in this context is a piece of software used by network participants—specifically, builders—to receive new tokens on the chain.

In a previous article on Danksharding, block builders and proposers were discussed. For new readers, Block builders are Ethereum network participants that create blocks (sets of transactions), which are then relayed to validators that order them into the blockchain network (Ethereum). Currently, there are 10 active relays delivering blocks in the network; these include Flashbots, BloXroute Max Profit, Blocknative, Eden, BloXroute Regulated, BloXroute Ethical, Manifold, Agnostic Relay, Relayooor, and Ultra sound relay. According to mevboost.org, Flashbots relay 74.28% of built blocks.

Since September, after the Ethereum update—the merge—MEV activity has increased. Validators collaborate with builders to extract fees from lucrative trades. Builders are paid to order transactions in favour of the validators.

Now it gets better for builders as this forthcoming update—Warm COINBASE—will reduce fees 26 times lower, said Matt Nelson, product manager at ConsenSys.
Builders need to access COINBASE to receive new tokens in the network. Transactions like this interact with COINBASE multiple times; the first transaction costs more because it "warm" the COINBASE up. When it warms up, it costs less. Hence the name, "Warm COINBASE."

Currently, the access list is not initialized with the COINBASE address, thanks to the access list framework introduced in EIP-2929 that makes COINBASE initially "cold,"  which means that accessing the COINBASE address during a transaction incurs a higher gas cost than other addresses that are already included in the access list. This can make transactions that involve the COINBASE address more expensive than necessary. COINBASE payments are gaining popularity because they allow for conditional payments, which have the advantage of automatically canceling transactions that would be reversed.

The Warm COINBASE update proposes to include the COINBASE address in the access list at the start of transaction execution so that accessing the COINBASE address incurs the same gas cost as other addresses that are already included in the access list. This would make transactions that involve the COINBASE address more cost-effective and thus more likely to be used.

The main benefit of this update would be for transactions that pay validators conditionally, which specify a minimal gas price but pay the COINBASE a larger fee if certain conditions are met. These transactions allow users to avoid paying for transactions that would revert, and specialized systems such as Flashbots have been developed to process them outside of the mempool. The Warm COINBASE update would make it more cost-effective to use these transactions, which could help reduce spam and congestion on the Ethereum network.

A Warm COINBASE would primarily affect transactions that offer validators conditional payments. These transactions set a minimum gas price but offer COINBASE a higher fee if certain conditions are met. This allows traders using builders to avoid paying for transactions that would be reversed, and specialized systems have been developed to handle these transactions outside of the mempool. One example of such a system is Flashbots, which is publicly available and has inspired the development of other apps. The introduction of these systems has helped reduce the occurrence of spam and priority gas auctions that congested the network in the past. The number of COINBASE transfers per block has seen an increase over time.

Overall, EIP 3651 aims to improve the efficiency and cost-effectiveness of accessing the COINBASE address on the Ethereum blockchain, which could benefit a wide range of users and stakeholders. The change is expected to be included in the Shanghai software update, which is slated for release in the coming year.