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Invited Talk
DOI: 10.4230/LIPIcs.ICALP.2020.1
An Incentive Analysis of Some Bitcoin Fee Designs (Invited Talk)

Authors: Andrew Chi chih Yao

Published in: LIPIcs, Volume 168, 47th International Colloquium on Automata, Languages, and Programming (ICALP 2020)

Abstract
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 [Lavi et al., 2019] 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. In this paper, we prove that the MP mechanism is nearly incentive compatible for any iid distribution as the number of users grows large. This holds true with respect to other attacks such as splitting bids. We also prove a conjecture in [Lavi et al., 2019] that MP dominates the RSOP auction in revenue (originally defined in [Goldberg et al., 2006] for digital goods). These results lend support to MP as a Bitcoin fee design candidate. Additionally, we explore some possible intrinsic correlations between incentive compatibility and revenue in general.
Cite as

Andrew Chi chih Yao. An Incentive Analysis of Some Bitcoin Fee Designs (Invited Talk). In 47th International Colloquium on Automata, Languages, and Programming (ICALP 2020). Leibniz International Proceedings in Informatics (LIPIcs), Volume 168, pp. 1:1-1:12, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2020)

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@InProceedings{yao:LIPIcs.ICALP.2020.1,
  author =	{Yao, Andrew Chi chih},
  title =	{{An Incentive Analysis of Some Bitcoin Fee Designs}},
  booktitle =	{47th International Colloquium on Automata, Languages, and Programming (ICALP 2020)},
  pages =	{1:1--1:12},
  series =	{Leibniz International Proceedings in Informatics (LIPIcs)},
  ISBN =	{978-3-95977-138-2},
  ISSN =	{1868-8969},
  year =	{2020},
  volume =	{168},
  editor =	{Czumaj, Artur and Dawar, Anuj and Merelli, Emanuela},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.ICALP.2020.1},
  URN =		{urn:nbn:de:0030-drops-124087},
  doi =		{10.4230/LIPIcs.ICALP.2020.1},
  annote =	{Keywords: Bitcoin, blockchain, incentive compatibility, maximum revenue, mechanism design}
}
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