Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305516 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11274
Publisher: 
CESifo GmbH, Munich
Abstract: 
Blockchains, the technology underlying cryptocurrencies, face large fluctuations in user demand and marginal costs. These fluctuations make effective fee policies necessary to manage transaction service allocation. This paper models the conflict between the blockchain designer and validators with monopoly power in choosing between price-setting and quantity-setting fee policies. The key determinants of the advantage of price-setting on blockchains are the validators’ bargaining power, the elasticity of demand, the validators’ uncertainty about demand, and the covariance of demand and marginal costs. My results help account for differences between the fee policy designs of Bitcoin and Ethereum, the leading blockchains, and have implications for how they can be improved.
Subjects: 
blockchain
transaction costs
fee policies
Bitcoin
Ethereum
demand fluctuations
price elasticity
Document Type: 
Working Paper
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