What Drives Bitcoin Fees? Using Segwit to Assess Bitcoin's Long-Run Sustainability

Colin Brown, Jonathan Chiu and Thorsten Koeppl

Staff Working Papers from Bank of Canada

Abstract: Can Bitcoin remain tamper proof in the long run? We use block-level data from the Bitcoin blockchain to estimate the impact of congestion and the USD price on fee rates. The introduction and adoption of the Segwit protocol allows us to identify an aggregate demand curve for bitcoin transactions. We find that Segwit has reduced fee revenue by about 70%. Fee revenue could be maximized at a block size of about 0.6 MB when Segwit adoption remains at current levels. At this block size, maximum fee revenue would be equivalent to 1/8 of the current average block reward. Hence, large sustained price increases are required to keep mining rewards constant in the long run.

Keywords: Digital currencies and fintech; Payment clearing and settlement systems (search for similar items in EconPapers)
JEL-codes: E42 G2 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2022-01
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
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Related works:
Working Paper: What Drives Bitcoin Fees? Using Segwit to Assess Bitcoin's Long-run Sustainability (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:22-2

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