"A Transaction Fee Market Exists Without a Block Size Limit"--new research paper suggests

Summary:

Peter has shared a research paper titled “A Transaction Fee Market Exists Without a Block Size Limit” with the Bitcoin-Dev Mailing list. In the paper, Peter presents charts on the cost of producing large spam blocks and claims that the orphaning cost negates the need for a block size limit to ensure a functioning fee market. However, he acknowledges that the paper does not argue against a block size limit in general, and raises questions about mining cartels and the size of the UTXO set. The paper can be downloaded in PDF format or viewed with a web-browser. The abstract of the paper explains how a rational Bitcoin miner should select transactions from their node’s mempool to maximize their profit in the absence of a block size limit. It introduces the block space supply curve and the mempool demand curve, which represent the cost for a miner to supply block space and the fees offered by transactions in the mempool, respectively. The paper explains how these curves are related to the derivatives of the classical economics supply and demand curves and proves that producing the quantity of block space indicated by their intersection point maximizes the miner’s profit. Additionally, the paper shows that an unhealthy fee market where miners are incentivized to produce arbitrarily large blocks cannot exist since it requires communicating information at an arbitrarily fast rate. Finally, the paper considers the conditions under which a rational miner would produce big, small or empty blocks, and estimates the cost of a spam attack.

Updated on: 2023-06-10T18:11:09.604941+00:00