Redesigning Bitcoin's fee market

Lavi, Ron; Sattath, Or; Zohar, Aviv

doi:10.1145/3308558.3313454

Cited by 51 publications

(45 citation statements)

References 14 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This means that base rewards are critical for system security, and should be achieved either by subsidy, fee backlogs, or alternative fee schemes [45,55]. We show that EBRR ≈ 6 is sufficient to avoid mining gaps in presented scenarios; we expect Bitcoin to drop below this threshold within a decade.…”

Section: Resultsmentioning

confidence: 82%

“…Rewards are distributed by consecutive leaders, yet it also assumes both negligible fees and miner expenses. Lavi et al [45] considers two new bidding schemes for Bitcoin's fees market, while focusing on incentivizing miners to offer their true bids rather than strategically bid. Our results focus on Bitcoin-like cryptocurrency protocols and with Bitcoin's current incentive scheme, and do not trivially apply to these other protocols.…”

Section: Related Workmentioning

confidence: 99%

See 1 more Smart Citation

The Gap Game

Tsabary

Eyal

2018

Proceedings of the 2018 ACM SIGSAC Conference on Computer and Communications Security

View full text Add to dashboard Cite

Blockchain-based cryptocurrencies secure a decentralized consensus protocol by incentives. The protocol participants, called miners, generate (mine) a series of blocks, each containing monetary transactions created by system users. As incentive for participation, miners receive newly minted currency and transaction fees paid by transaction creators. Blockchain bandwidth limits lead users to pay increasing fees in order to prioritize their transactions. However, most prior work focused on models where fees are negligible. In a notable exception, Carlsten et al. [17] postulated that if incentives come only from fees then a mining gap would form -miners would avoid mining when the available fees are insufficient.In this work, we analyze cryptocurrency security in realistic settings, taking into account all elements of expenses and rewards. To study when gaps form, we analyze the system as a game we call the gap game. We analyze the game with a combination of symbolic and numeric analysis tools in a wide range of scenarios.Our analysis confirms Carlsten et al. 's postulate; indeed, we show that gaps form well before fees are the only incentive, and analyze the implications on security. Perhaps surprisingly, we show that different miners choose different gap sizes to optimize their utility, even when their operating costs are identical. Alarmingly, we see that the system incentivizes large miner coalitions, reducing system decentralization. We describe the required conditions to avoid the incentive misalignment, providing guidelines for future cryptocurrency design. CCS CONCEPTS• Security and privacy → Distributed systems security; Security protocols; Economics of security and privacy; • Computer systems organization → Peer-to-peer architectures;

show abstract

Section: Resultsmentioning

confidence: 82%

Section: Related Workmentioning

confidence: 99%

The Gap Game

Tsabary

Eyal

2018

Proceedings of the 2018 ACM SIGSAC Conference on Computer and Communications Security

View full text Add to dashboard Cite

show abstract

“…The most closely related work is the monopolistic miner protocol of Lavi, Sattath and Zohar [2017]. 3 They propose a protocol in which the winning miner decides how many transactions to put into the block and charges all of them the lowest fee proposed by any transaction he placed in that block.…”

Section: Introductionmentioning

confidence: 99%

“…Yao [2018] provides proofs of conjectures fromLavi, Sattath and Zohar [2017] about the general incentive compatibility and profitability of their monopolistic miner protocol.…”

mentioning

confidence: 99%

Towards a Functional Fee Market for Cryptocurrencies

et al. 2019

View full text Add to dashboard Cite

Blockchain-based cryptocurrencies prioritize transactions based on their fees, creating a unique kind of fee market. Empirically, this market has failed to yield stable equilibria with predictable prices for desired levels of service. We argue that this is due to the absence of a dominant strategy equilibrium in the current fee mechanism. We propose an alternative fee setting mechanism that is inspired by generalized second price auctions. The design of such a mechanism is challenging because miners can use any criteria for including transactions and can manipulate the results of the auction after seeing the proposed fees. Nonetheless, we show that our proposed protocol is free from manipulation as the number of users increases. We further show that, for a large number of users and miners, the gain from manipulation is small for all parties. This results in users proposing fees that represent their true utility and lower variance of revenue for miners. Historical analysis shows that Bitcoin users could have saved $272,528,000 USD in transaction fees while miners could have reduced the variance of fee income by an average factor of 7.4 times.

show abstract

“…11 We are not aware of such an approach to investigate the block size limit and transaction fees, with the closest in the existing literature being perhaps the work by Lavi (et al) ("Redesigning Bitcoin's Fee Market," 2017). 9 Given the block capacity, the transaction size and associated proposed fees will determine which exchanges are confirmed in the next block. For this reason, users compete to enclose their transactions among those maximizing the miner's revenue.…”

mentioning

confidence: 99%

Transaction Fees, Block Size Limit, and Auctions in Bitcoin

Dimitri

2019

ledger

View full text Add to dashboard Cite

Confirmation of Bitcoin transactions is executed in blocks, which are then stored in the Blockchain. As compared to the number of transactions in the mempool, the set of transactions which are verified but not yet confirmed, available space for inclusion in a block is typically limited. For this reason, successful miners can only process a subset of such transactions, and users compete with each other to enter the next block by offering confirmation fees. Assuming that successful miners pursue revenue maximization, they will include in the block those mempool transactions that maximize earnings from related fees. In the paper we model transaction fees as a Nash Equilibrium outcome of an auction game with complete information. In the game the successful miner acts as an auctioneer selling block space, and users bid for shares of such space to confirm their transactions. Moreover, based on expected fees we also discuss what the optimal, revenue maximizing, block size limit should be for the successful miner. Consistently with the intuition, the optimal block size limit resolves the trade-off between including additional transactions (which possibly lower the unit fees collected) and keeping the block capacity limited (with, however, higher unit fees). 69outstanding transactions, and this is why users compete with each other for space, by proposing fees to confirm their exchanges in the next block. [4][5][6][7][8][9][10] This paper discusses the latter kind of competition, interpreting transaction fees as price bids submitted by the users to obtain (buy) a share of the available block space for transaction confirmation. Under such an interpretation, competition for block space can be seen as an auction, with the successful miner acting as an auctioneer, selling space for confirmation, and the proposed transaction fees acting as price bids to obtain shares of the available space. 11 We are not aware of such an approach to investigate the block size limit and transaction fees, with the closest in the existing literature being perhaps the work by Lavi (et al.) ("Redesigning Bitcoin's Fee Market," 2017). 9 Given the block capacity, the transaction size and associated proposed fees will determine which exchanges are confirmed in the next block. For this reason, users compete to enclose their transactions among those maximizing the miner's revenue. In so doing they face a fundamental trade-off: the higher the fee offered, the more likely it is for a transaction to be confirmed soon, but the more expensive-in case of confirmation-the payment will be. For this reason, the proposed fee is likely to be the outcome of a strategic decision. Namely, how large a fee to offer may depend also on what the other users are expected, or known, to offer.The problem bears similarities with the well-known Rucksack Problem, 12 though with a main difference. More specifically, in our approach a variation in the block capacity would typically affect the proposed transaction fees, while in the classical Rucksack problem this does not take pl...

show abstract

Redesigning Bitcoin's fee market

Cited by 51 publications

References 14 publications

The Gap Game

The Gap Game

Towards a Functional Fee Market for Cryptocurrencies

Transaction Fees, Block Size Limit, and Auctions in Bitcoin

Contact Info

Product

Resources

About