Abstract
Bitcoin users compete with one another over the timing of the settlement of their on-[block]chain transactions. Earlier settlement is valuable. Bitcoin users can accelerate the confirmation of the settlement of their transactions in the cryptocurrency by voluntarily bidding transaction fees with a user's optimal fee level dependent upon his or her impatience. We characterize this transaction competition as a contest with a rank-order allocation of prizes. Under this characterization, we derive the fee-bidding strategy at the symmetric equilibrium. Based on this equilibrium, we discuss the Bitcoin network and highlight the impacts of changes in different factors related to the mining industry. We find that fee–security feedback can amplify the impacts of these events.
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