Also read: “Blockchain Technology” Is Bringing Bitcoin to the Mainstream
Paper Abstract:
“This paper shows how a rational Bitcoin miner should select an optimal block size to mine based on basic properties of mempool transactions. The paper explains this by expanding on the notions of block space supply and mempool demand curves recently described in the literature. The paper quanties the conditions under which a healthy fee market can be expected to exist based on very simple properties of the mempool. Finally, the paper concludes by quantifying a miner’s revenue advantage as a function of the operating hashrate. We consider the conditions for this advantage to be minimized and show how this is deeply related to the value of block reward subsidies.”
The main argument of the paper uses the mathematical model of added profit per unit of hash as a function of miner hashrate. /u/dpinna shows how large block subsidies and lower mempool fees-to-subsidy ratios) provide extra incentive of pooling large hashrates due to increasing marginal profits. /u/dpinna also outlines the advantage large miners have due to the high barrier of entry into high-efficiency mining class. Unlike the average miner, large hashrate players and high-efficiency miners have access to more consistent expected profits and will likely receive a much more predictable amount of revenue than the average miner due to the fact that they are much more likely to mine a block. /u/dippna’s paper argues that as the block subsidies decrease, the high-efficiency mining class will vanish. As that class vanishes, a new marginal profit structure which decreases as a function of hashrate is expected to emerge.
You can read /u/dpinna’s full paper here.
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