An Incentive Analysis of some Bitcoin Fee Designs

Understand

In the Bitcoin system, miners are incentivized to join the system and validate transactions through fees paid by the users.

• A simple "pay your bid" auction has been employed to determine the transaction fees.
• Recently, Lavi, Sattath and Zohar [LSZ17] proposed an alternative fee design, called the monopolistic price (MP) mechanism, aimed at improving the revenue for the miners.
• Although MP is not strictly incentive compatible (IC), they studied how close to IC the mechanism is for iid distributions, and conjectured that it is nearly IC asymptotically based on extensive simulations and some analysis.