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Transaction Fee Economics in the Ethereum Blockchain

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  • Alexander Karaivanov

    (Simon Fraser University)

  • Anil Donmez

    (Simon Fraser University)

Abstract

We study the economic determinants and dynamics of transaction fees in the Ethereum blockchain. The transaction fee is an endogenous price for service, paid when a direct transfer or smart-contract transaction is recorded on the blockchain. We estimate an empirical model based on queueing theory and analyze the factors determining the Ethereum "gas price", i.e., transaction cost per unit of service, "gas". Using detailed block-level and transaction-level data obtained directly from the Ethereum blockchain, we show that changes in network service demand significantly a ect the marginal and median gas price: when there is high block utilization, per-unit transaction fees increase on average, with a very strong non-linear threshold effect above 90% utilization. We also find that the transaction type is an important factor - a larger fraction of regular transactions (direct transfers between users, as opposed to smart contract calls), is associated with higher gas price.

Suggested Citation

  • Alexander Karaivanov & Anil Donmez, 2021. "Transaction Fee Economics in the Ethereum Blockchain," Discussion Papers dp21-02, Department of Economics, Simon Fraser University.
    • Handle: RePEc:sfu:sfudps:dp21-02
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    Cited by:

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    2. Jacob D. Leshno & Elaine Shi & Rafael Pass, 2024. "On the Viability of Open-Source Financial Rails: Economic Security of Permissionless Consensus," Papers 2409.08951, arXiv.org.
    3. Barbara Guidi & Andrea Michienzi, 2023. "From NFT 1.0 to NFT 2.0: A Review of the Evolution of Non-Fungible Tokens," Future Internet, MDPI, vol. 15(6), pages 1-23, May.
    4. Ravi Kashyap, 2024. "The Democratization of Wealth Management: Hedged Mutual Fund Blockchain Protocol," Papers 2405.02302, arXiv.org, revised Jul 2024.
    5. Jain, Archana & Jain, Chinmay & Krystyniak, Karolina, 2023. "Blockchain transaction fee and Ethereum Merge," Finance Research Letters, Elsevier, vol. 58(PC).
    6. Yunfei Yang & Guifei Qu & Lianlian Hua & Lifeng Wu, 2022. "Knowledge Mapping Visualization Analysis of Research on Blockchain in Management and Economics," Sustainability, MDPI, vol. 14(22), pages 1-24, November.
    7. Raphael Auer & Bernhard Haslhofer & Stefan Kitzler & Pietro Saggese & Friedhelm Victor, 2024. "The technology of decentralized finance (DeFi)," Digital Finance, Springer, vol. 6(1), pages 55-95, March.
    8. Ravi Kashyap, 2024. "To Trade Or Not To Trade: Cascading Waterfall Round Robin Rebalancing Mechanism for Cryptocurrencies," Papers 2407.12150, arXiv.org.
    9. Alexander Karaivanov and Shayan Zarifian, 2024. "Economic Determinants of Ethereum Transaction Fees in the Priority Fee and Proof of Stake Periods," Discussion Papers dp24-02, Department of Economics, Simon Fraser University.
    10. Ravi Kashyap, 2024. "The Blockchain Risk Parity Line: Moving From The Efficient Frontier To The Final Frontier Of Investments," Papers 2407.09536, arXiv.org.
    11. Lennart Ante & Aman Saggu, 2024. "Time-Varying Bidirectional Causal Relationships between Transaction Fees and Economic Activity of Subsystems Utilizing the Ethereum Blockchain Network," JRFM, MDPI, vol. 17(1), pages 1-28, January.

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