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

Collin Brown, Jonathan Chiu () and Thorsten Koeppl ()

No 1423, Working Paper from Economics Department, Queen's University

Abstract: We use block level data from the Bitcoin blockchain to estimate the impact of congestion and the USD price on average fee rates. The introduction and adoption of the Segwit protocol allows us to identify an aggregate demand curve for bitcoin transactions. We nd that Segwit has reduced fee revenue by about 80%. Fee revenue could be maximized at a blocksize of about 0.6 MB when Segwit adoption remains at 40%. At this blocksize, maximum fee revenue would be roughly 1/8 of the current block reward { or the equivalent of 1.6375 BTC as a reward in the long run given current prices and demand for Bitcoin.

Keywords: Bitcoin; Payment Systems; Fees; Congestion; Segwit Protocol (search for similar items in EconPapers)
JEL-codes: E42 G2 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2019-10
New Economics Papers: this item is included in nep-mac and nep-pay
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