A Monopolistic Auction Design for Bitcoin Transaction Fees

Summary

The document examines how Bitcoin's fee market could address two connected challenges: sustaining miner revenue as block rewards decline and easing throughput limits imposed by a maximum block size. Under pay-your-bid fees, raising block capacity could reduce revenue, so the authors analyze a monopolistic auction as a way to separate these concerns.

They claim the auction's revenue does not fall as the block-size limit rises and that the mechanism remains resilient when the miner acts as an untrusted auctioneer. They also argue that strategic bid shading becomes less beneficial on average as the number of bids grows, simplifying participation for transaction issuers. The text provides no formal model assumptions, proof details, simulations, or empirical fee data, so it describes proposed mechanism properties rather than evidence of real-world performance.

Key ideas

• Bitcoin's block capacity and miner revenue are linked under pay-your-bid fees.
• The document analyzes a monopolistic auction as an alternative fee-market design.
• The authors claim auction revenue does not decline when the block-size limit increases.
• They also claim resilience to an untrusted miner-auctioneer and declining gains from bid shading as bids grow in number.
• No empirical fee-market evaluation or proof details are included in the supplied description.

Tags

# Redesigning Bitcoin's fee market


# Redesigning Bitcoin's fee market









The Bitcoin payment system involves two agent types: Users that transact with the currency and pay fees and miners in charge of authorizing transactions and securing the system in return for these fees. Two of Bitcoin's challenges are (i) securing sufficient miner revenues as block rewards decrease, and (ii) alleviating the throughput limitation due to a small maximal block size cap. These issues are strongly related as increasing the maximal block size may decrease revenue due to Bitcoin's pay-your-bid approach. To decouple them, we analyze the "monopolistic auction", showing: (i) its revenue does not decrease as the maximal block size increases, (ii) it is resilient to an untrusted auctioneer (the miner), and (iii) simplicity for transaction issuers (bidders), as the average gain from strategic bid shading (relative to bidding one's value) diminishes as the number of bids increases.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.