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Session 2.04: Market Power and the Bitcoin Protocol
Time:
Tuesday, 26/Aug/2025:
11:00am - 11:30am
Location:Carmen Conference hall
Meeting hall “Carmen”, which can accommodate up to 70 people
Presentations
Market Power and the Bitcoin Protocol
Prof. Alfred Lehar1, Prof. Christine Parlour2
1University of Calgary, Canada; 2UC Berkeley
We document that blocks on the blockchain are rarely filled to capacity, even though there is excess demand for block space by fee-paying users who want their transactions to be recorded. In spite of this, higher fee orders are not always prioritized. We show these patterns are consistent with miners exercising market power: If users believe that only high fee transactions will be executed expeditiously we show how strategic capacity management can be used to extract higher fee revenue. Using a novel data set, we provide evidence consistent with this market power, and estimate that mining pools have extracted least 300 million USD a year in excess fees by making processing capacity artificially scarce.
