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The economics of Bitcoin transaction fees

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  • Nicolas Houy

    (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I)

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    Abstract

    We study the economics of Bitcoin transaction fees in a simple static partial equilibrium model with the specificity that the system security is directly linked to the total computational power of miners. We show that any situation with a fixed fee is equivalent to another situation with a limited block size. In both cases, we give the optimal value of the transaction fee or of the block size. We also show that making the block size a non binding constraint and, in the same time, letting the fee be fixed as the outcome of a decentralized competitive market cannot guarantee the very existence of Bitcoin in the long-term.

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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number halshs-00951358.

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    Date of creation: 24 Feb 2014
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    Handle: RePEc:hal:wpaper:halshs-00951358

    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00951358
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    Related research

    Keywords: Bitcoin; transaction fee; mining; crypto-currency;

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