Miner Collusion and the BitCoin Protocol

34 Pages Posted: 17 Apr 2020

See all articles by Alfred Lehar

Alfred Lehar

University of Calgary - Haskayne School of Business

Christine A. Parlour

University of California, Berkeley - Finance Group

Date Written: March 22, 2020

Abstract

Bitcoin users can offer fees to miners who record their transactions in the block-chain. We document high variation of bitcoin fees, not only over time, but also within blocks. Further, the block-chain rarely runs at capacity, even though fees tend to be higher when blocks are fuller, so miners appear to be leaving `money on the table.' We present a simple model of price discrimination to explain our results. We note that mining pools facilitate collusive equilibria, and estimate that they have extracted least 200 million USD a year in excess fees by making processing capacity scarce.

Keywords: Bitcoin, Transaction Costs, Block-chain, Decentralized Finance

Suggested Citation

Lehar, Alfred and Parlour, Christine A., Miner Collusion and the BitCoin Protocol (March 22, 2020). Available at SSRN: https://ssrn.com/abstract=3559894 or http://dx.doi.org/10.2139/ssrn.3559894

Alfred Lehar (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-4567 (Phone)

HOME PAGE: http://homepages.ucalgary.ca/~alehar/

Christine A. Parlour

University of California, Berkeley - Finance Group ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
510-643-9391 (Phone)

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