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

Summary:

Peter R has written a research paper titled “A Transaction Fee Market Exists Without a Block Size Limit” which he shared with the Bitcoin-Dev Mailing list. The paper examines the cost to produce large spam blocks and demonstrates that, due to orphaning cost, a block size limit is not necessary to ensure a functioning fee market. However, the paper does not argue that a block size limit is unnecessary in general, and raises questions related to mining cartels and the size of the UTXO set. The paper introduces the block space supply curve and the mempool demand curve to show how a rational Bitcoin miner should select transactions from his node’s mempool when creating a new block, in order to maximize his profit in the absence of a block size limit. Peter agreed with Dave's feedback regarding equation 4, and suggested that the paper would be stronger if it also analyzed how the model changes (or doesn't) if zero propagation impedance is assumed for intra-miner communication. He further explored Dave's suggestion that a 1% miner must assume greater risk from orphaning than a pool with 25%, or worse 40% of the hash rate. Peter suspects that this may well change some of the conclusions as larger block makers will definitely be able to create larger blocks than their smaller counterparts. Nonetheless, he believes that the main result that "a healthy fee market exists" will still hold.

Updated on: 2023-06-10T18:09:27.916742+00:00