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 strategic miners in the sense of miners being able to reason k-blocks ahead. We derive expressions for optimal miner behavior (in terms of setting block sizes) in the case of 2-block foresight and 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 both 2-block and 3-block foresight. In particular, the simulation study indicates that for realistic levels of hashing power, mining pools do not gain from the being able to reason more than 2 blocks ahead. Moreover, even though the presence of strategic miners increase the variation in block sizes and potentially empty blocks, overall system throughput tend to increase slightly compared to myopic mining.
Length: 25 pages
Creation-Date: 2022-08
Revision-Date: 2022-12
File-URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2022/IFRO_WP_2022_04_update.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