Latency Tradeoffs in Blockchain Capacity Management

Michele Fabi ()
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Michele Fabi: Telecom Paris, CREST, IP Paris

No 2024-10, Working Papers from Center for Research in Economics and Statistics

Abstract: We analyze the effect of block propagation latency on the performance and design of Nakamoto-style blockchains. Miners strategically choose block capacity, balancing the risk of invalidation from forking with transaction fee income. The model identifies a unique and symmetric Nash equilibrium block capacity, which increases with the ratio of block production time to transmission delay and decreases with the ratio of coinbase reward to transaction fee rate. We endogenize blockchain growth and derive the Fokker-Planck equation for pending mempool data. The results reveal a tradeoff between efficiency (low transaction load) and security (high miner participation). Reducing the coinbase reward while raising transaction fees improves efficiency but may weaken security. We also discuss testable implications and extend the model to include uncle block rewards and discrete latency.

Keywords: Blockchain design; Nakamoto consensus; forks; coinbase; stochastic storage (search for similar items in EconPapers)
JEL-codes: C62 C63 G10 G14 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2024-09-15
New Economics Papers: this item is included in nep-gth and nep-pay
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