Author: William Morriss 2017-11-30 06:05:02
Published on: 2017-11-30T06:05:02+00:00
In an email thread discussing auction theory and its potential application to Bitcoin, Chenxi Cai explains that Bitcoin currently uses a Generalized first-price auction, where winning bidders pay their full bids. However, two other approaches may be viable: the Generalized second-price auction, where winning bidders pay their next highest bids, and the Vickrey-Clarke-Groves auction, which considers all bids in relation to one another to elicit truthful bids from bidders. Despite the potential benefits of these alternative approaches, Cai notes that the choice of fee design will not impact miners' fees unless the outcomes of the auction change. Additionally, the sole benefit of the second-price auction over the first-price auction is to spare people's mental troubles from strategizing, rather than actually saving mining fees, because in equilibrium the fees bidders pay remain the same. Finally, changing the bidding system to the marginal price would allow for a superseding of the block size limit, which changes the outcome of the auction as different transactions are included.
Updated on: 2023-06-12T22:22:21.067071+00:00