From Mining to Markets: The Evolution of Bitcoin Transaction Fees

56 Pages Posted: 19 Oct 2017 Last revised: 1 Mar 2019

See all articles by David Easley

David Easley

Cornell University - Department of Economics; Cornell University - Department of Information Science

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Soumya Basu

Cornell University - Department of Computer Science

Date Written: May 1, 2018

Abstract

We investigate the role that transaction fees play in the Bitcoin blockchain’s evolution from a mining-based structure to a market-based ecology. We develop a game-theoretic model to explain the factors leading to the emergence of transactions fees, as well as to explain the strategic behavior of miners and users. Our model also highlights the role played by mining rewards and by volume, and examines how microstructure features such as exogenous structural constraints influence the dynamics and stability of the Bitcoin blockchain. We provide empirical evidence on the predictions of our model and discuss implications for Bitcoin’s evolution.

Keywords: Bitcoin, transaction fees, mining revenue, game theory

JEL Classification: G10, G29

Suggested Citation

Easley, David and O'Hara, Maureen and Basu, Soumya, From Mining to Markets: The Evolution of Bitcoin Transaction Fees (May 1, 2018). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3055380 or http://dx.doi.org/10.2139/ssrn.3055380

David Easley

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)

Cornell University - Department of Information Science ( email )

402 Bill & Melinda Gates Hall
Ithaca, NY 14853
United States

Maureen O'Hara (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

Soumya Basu

Cornell University - Department of Computer Science ( email )

4130 Upson Hall
Ithaca, NY 14853
United States

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