The economics of Bitcoin transaction fees

Nicolas Houy

No 1407, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

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.

Keywords: Bitcoin; transaction fee; mining; crypto-currency (search for similar items in EconPapers)
JEL-codes: D23 E42 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Working Paper: The economics of Bitcoin transaction fees (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1407

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