When Higher Stakes Weaken Security

A central design goal of settlement systems is that security should not degrade when transaction values are high. Using Ethereum’s Proof-of-Work era, we show that Proof-of-Work can fail this test: higher transaction fees—the reward for a successful attack—cause miners to deviate from honest behavior and fork the chain, undermining settlement finality when it is most needed. We exploit a unique feature of Ethereum’s Proof-of-Work era that records, for each fork, both the winning block and its displaced competitor’s timestamp. We jointly instrument hourly mean log fees, hashrate, and block size using a crypto shock indicator constructed from Ethereum hacks, market crises, and regulatory events, together with one-hour lags of hashrate and block size. Higher fees significantly increase canonical blocks arriving exactly one second later than the siblings they displace, which is consistent with deviation from honest behavior. The converse event showing honest behavior—a canonical block arriving before its siblings—is not driven by high fees. This contrast indicates that fees affect equilibrium behavior and settlement finality in Proof-of-Work blockchains.