Transaction Fee Economics in the Ethereum Blockchain

Alexander Karaivanov and Anil Donmez
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Anil Donmez: Simon Fraser University

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: We study the economic determinants and dynamics of transaction fees in the Ethereum blockchain. The transaction fee is an endogenous price for service, paid when a direct transfer or smart-contract transaction is recorded on the blockchain. We estimate an empirical model based on queueing theory and analyze the factors determining the Ethereum "gas price", i.e., transaction cost per unit of service, "gas". Using detailed block-level and transaction-level data obtained directly from the Ethereum blockchain, we show that changes in network service demand significantly a ect the marginal and median gas price: when there is high block utilization, per-unit transaction fees increase on average, with a very strong non-linear threshold effect above 90% utilization. We also find that the transaction type is an important factor - a larger fraction of regular transactions (direct transfers between users, as opposed to smart contract calls), is associated with higher gas price.

Date: 2021-01
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