From mining to markets: The evolution of bitcoin transaction fees

By David A. Easley, Maureen O’Hara, Soumya Basu. Journal of Financial Economics, 2019

542 citations recorded by the source corpus.

Abstract We investigate the role that transaction fees play in the bitcoin blockchain's evolution from a mining-based structure to a market-based ecology. We develop a game-theoretic model to explain the factors leading to the emergence of transactions fees, as well as to explain the strategic behavior of miners and users. Our model highlights the role played by mining rewards, transaction fees, price, and waiting time, discusses welfare issues, and examines how microstructure features such as exogenous structural constraints influence the dynamics of user participation on the blockchain. We provide empirical evidence on the model's predictions and discuss implications for bitcoin's evolution.

Subfields: Information Systems, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/40b8dd8c6d9926a3b7e0becd134b38b69b386ae6

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Information Systems

1. Yukun Liu
2. Aleh Tsyvinski
3. Mauro Conti
4. Sushmita Ruj
5. Chhagan Lal
6. Fahad Saleh
7. Surinder Kumar

In Sociology and Political Science

1. Mauro Conti
2. Yukun Liu
3. Aleh Tsyvinski

Citations in the corpus

• A Survey on Security and Privacy Issues of Bitcoin (2017, background): “[27] investigate the evolution of transactions fees to understand its role and behavior along with its influence on the dynamics and stability of the blockchain.”
• Blockchain without Waste: Proof-of-Stake (2020, background): “Some computer science papers such as Eyal and Sirer (2014) and Nayak, Kumar, Miller, and Shi (2015) explicitly consider incentives but do not analyze equilibrium outcomes.”
• Equilibrium Bitcoin Pricing (2018, unknown): “setting, Fernández-Villaverde and Sanches (2018) and Hendry and Zhu (2018) extend the model by Lagos and Wright (2005) to multiple currencies and study the stability and welfare implications of the private supply of money alongside a government-backed currency.”
• Blockchain Disruption and Smart Contracts (2018, unknown): “(41)See, for example, Innes (1990), Hart and Moore (1995), and DeMarzo and Duffie (1999).”
• Risks and Returns of Cryptocurrency (2018, methodology): “13 The Fama-French three-factor model is based on Fama and French (1993) and Fama and French (1996).”