The Economics of Bitcoin Transaction Fees

GATE WP 1407

12 Pages Posted: 26 Feb 2014  

Nicolas Houy

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Date Written: February 24, 2014

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.

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

JEL Classification: E23, E42

Suggested Citation

Houy, Nicolas, The Economics of Bitcoin Transaction Fees (February 24, 2014). GATE WP 1407. Available at SSRN: https://ssrn.com/abstract=2400519 or http://dx.doi.org/10.2139/ssrn.2400519

Nicolas Houy (Contact Author)

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

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