[bitcoin-dev] "A Transaction Fee Market Exists Without a Block Size Limit"--new research paper suggests

Benjamin benjamin.l.cordes at gmail.com
Wed Aug 5 08:33:13 UTC 2015

Very interesting paper. When you talk about a market, what are you
referring to exactly? A market means that demand and supply are matched
continuously, and Bitcoin has no such mechanism. A lot of discussion has
been around fixing the "supply" of blocksize. A floating number would mean
that a hardcoded number or function would be replaced by a decision process
involving users (demand). I don't think a fee market exists and that demand
or supply are not easily definable. Ideally supply of transaction
capability would completely depend on demand, and a price would exist such
that demand can react to longterm or shorterm supply constraints. In such a
scenario there would be no scalability concerns, as scale would be almost
perfectly elastic.

On Tue, Aug 4, 2015 at 8:40 AM, Peter R via bitcoin-dev <
bitcoin-dev at lists.linuxfoundation.org> wrote:

> Dear Bitcoin-Dev Mailing list,
> I’d like to share a research paper I’ve recently completed titled “A
> Transaction Fee Market Exists Without a Block Size Limit.”  In addition to
> presenting some useful charts such as the cost to produce large spam
> blocks, I think the paper convincingly demonstrates that, due to the
> orphaning cost, a block size limit is not necessary to ensure a functioning
> fee market.
> The paper does not argue that a block size limit is unnecessary in
> general, and in fact brings up questions related to mining cartels and the
> size of the UTXO set.
> It can be downloaded in PDF format here:
> https://dl.dropboxusercontent.com/u/43331625/feemarket.pdf
> Or viewed with a web-browser here:
> https://www.scribd.com/doc/273443462/A-Transaction-Fee-Market-Exists-Without-a-Block-Size-Limit
> *Abstract.  *This paper shows how a rational Bitcoin miner should select
> transactions from his node’s mempool, when creating a new block, in order
> to maximize his profit in the absence of a block size limit. To show this,
> the paper introduces the block space supply curve and the mempool demand
> curve.  The former describes the cost for a miner to supply block space by
> accounting for orphaning risk.  The latter represents the fees offered by
> the transactions in mempool, and is expressed versus the minimum block size
> required to claim a given portion of the fees.  The paper explains how the
> supply and demand curves from classical economics are related to the
> derivatives of these two curves, and proves that producing the quantity of
> block space indicated by their intersection point maximizes the miner’s
> profit.  The paper then shows that an unhealthy fee market—where miners are
> incentivized to produce arbitrarily large blocks—cannot exist since it
> requires communicating information at an arbitrarily fast rate.  The paper
> concludes by considering the conditions under which a rational miner would
> produce big, small or empty blocks, and by estimating the cost of a spam
> attack.
> Best regards,
> Peter
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> bitcoin-dev at lists.linuxfoundation.org
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