Miner competition and transaction fees
Date
2024-08-23
Authors
Shao, Enchuan
Rajapaksa, Danusha
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
ORCID
Type
Article
Degree Level
Abstract
In order to maintain the function of a decentralized financial system like Bitcoin, transaction fees are offered to engage miners in the transaction confirmation process. This paper investigates the effect of miner competition on the equilibrium transaction fees. We develop a game-theoretic model with costly entry into mining activities. We find that miners may strategically assemble fewer transactions into a block to reduce total fees, and as a result, to deter entry. Equilibrium transaction fees also depend on block rewards as a rise in total fees is accompanied by a drop in rewards. Our empirical analysis supports the model’s predictions. We provide evidence on the existence of excess capacity in a block, taking into account the random confirmation process. The empirical findings demonstrate that heightened competition tends to increase the block size and total fees. Furthermore, the halving of rewards correlates to a fee hike.
Description
0167-2681/© 2024 The Author(s)
Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Keywords
Bitcoin mining, Transaction fees, Entry deterrence
Citation
Shao, E., & Rajapaksa, D. (2024). Miner competition and transaction fees. In Journal of Economic Behavior & Organization (Vol. 227, p. 106736). Elsevier BV. https://doi.org/10.1016/j.jebo.2024.106736
Degree
Department
Program
Advisor
Committee
Part Of
item.page.relation.ispartofseries
DOI
10.1016/j.jebo.2024.106736