Template-Type: ReDIF-Paper 1.0
Author-Name: Jens Leth Hougaard
Author-Name-First: Jens Leth 
Author-Name-Last: Hougaard
Author-Email: jlh@ifro.ku.dk
Author-Workplace-Name: Department of Food and Resource Economics, University of Copenhagen
Author-Name: Mohsen Pourpouneh
Author-Name-First: Mohsen 
Author-Name-Last: Pourpouneh
Author-Email: mohsen@ifro.ku.dk
Author-Workplace-Name: Department of Food and Resource Economics, University of Copenhagen
Title: Farsighted Miners under Transaction Fee Mechanism EIP1559
Abstract: We investigate the recent fee mechanism EIP1559 of the Ethereum network. Whereas previous studies have focused on myopic miners, we here focus on rational miners in the sense of having level-k foresight. We derive expressions for optimal miner behavior (in terms of setting block sizes) in the case of level-2 foresight for varying degrees of hashing power. Results indicate that a sufficiently large mining pool will have enough hashing power to gain by strategic foresight. We further use a simulation study to examine the impact of foresight for levels k > 2. In particular, the simulation study indicates that for realistic levels of hashing power greater than 10% miners/pools can not gain from the foresight of levels k > 2.
Length: 28 pages
Creation-Date: 2022-08
File-URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2022/IFRO_WP_2022_04.pdf
File-Format: Application/pdf
Number: 2022/04
Classification-JEL: D47, D53, L11, L17
Keywords: Blockchain, Ethereum, Transaction fee mechanism.
Handle: RePEc:foi:wpaper:2022_04