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The economics of Bitcoin transaction fees

By Nicolas Houy

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

Topics: Bitcoin, transaction fee, mining, crypto-currency, JEL: D - Microeconomics/D.D2 - Production and Organizations/D.D2.D23 - Organizational Behavior • Transaction Costs • Property Rights, JEL: E - Macroeconomics and Monetary Economics/E.E4 - Money and Interest Rates/E.E4.E42 - Monetary Systems • Standards • Regimes • Government and the Monetary System • Payment Systems, [SHS.ECO]Humanities and Social Sciences/Economics and Finance
Publisher: HAL CCSD
Year: 2014
OAI identifier: oai:HAL:halshs-00951358v1
Provided by: HAL-UJM
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