Redesigning Bitcoin's Fee Market

Ron Lavi, Or Sattath, Aviv Zohar

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

The Bitcoin payment system involves two agent types: users that transact with the currency and pay fees and miners in charge of authorizing transactions and securing the system in return for these fees. Two of Bitcoin's challenges are (i) securing sufficient miner revenues as block rewards decrease, and (ii) alleviating the throughput limitation due to a small maximal block size cap. These issues are strongly related as increasing the maximal block size may decrease revenue due to Bitcoin's pay-your-bid approach. To decouple them, we analyze the "monopolistic auction"[16], showing (i) its revenue does not decrease as the maximal block size increases, (ii) it is resilient to an untrusted auctioneer (the miner), and (iii) simplicity for transaction issuers (bidders), as the average gain from strategic bid shading (relative to bidding one's value) diminishes as the number of bids increases.

Original languageAmerican English
Article number5
Pages (from-to)5:1-5:31
Number of pages31
JournalACM Transactions on Economics and Computation
Volume10
Issue number1
DOIs
StatePublished - Mar 2022

Bibliographical note

Publisher Copyright:
© 2022 Copyright held by the owner/author(s). Publication rights licensed to ACM.

Keywords

  • Bitcoin
  • auction-Theory
  • blockchain
  • cryptocurrency
  • fee-market

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