Miner Collusion and the BitCoin Protocol
34 Pages Posted: 17 Apr 2020
Date Written: March 22, 2020
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
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