Redesigning Bitcoin's Fee Market

R Lavi, Or Sattath, Aviv Zohar

Research output: Contribution to journalArticlepeer-review

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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 languageEnglish
Article number5
Pages (from-to)1-31
Number of pages30
JournalACM Transactions on Economics and Computation
Volume10
Issue number1
DOIs
Publication statusPublished - 31 Mar 2022

Keywords

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

ASJC Scopus subject areas

  • Computer Science (miscellaneous)
  • Statistics and Probability
  • Economics and Econometrics
  • Marketing
  • Computational Mathematics

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