Optimal Mining: Maximizing Bitcoin Miners' Revenues from Transaction Fees

Abstract

Following the Bitcoin model, many modern blockchains reward their miners in two ways: (i) a base reward for each block that is mined, and (ii) the transaction fees of those transactions that are included in the mined block. The base reward is fixed by the respective blockchain's protocol and is not under the miner's control. Hence, for a miner who wishes to maximize earnings, the fundamental problem is to form a valid block with maximal total transaction fees and then try to mine it. Moreover, in many protocols, including Bitcoin itself, the base reward halves at predetermined intervals, hence increasing the importance of maximizing transaction fees and mining an optimal block. This problem is further complicated by the fact that transactions can be prerequisites of each other or have conflicts (in case of double-spending). In this work, we consider the problem of forming an optimal block, i.e. a valid block with maximal total transaction fees, given a set of unmined transactions. The problem is known to be NP-hard. As such, there is no hope in solving it efficiently for general instances. However, we observe that its real-world instances are quite sparse, i.e. the transactions have very few dependencies and conflicts. Using this fact, and exploiting a well-known graph sparsity parameter, namely pathwidth, we present an exact linear-time parameterized algorithm that is applicable to the real-world instances and obtains optimal results. We also provide an experimental evaluation demonstrating that our approach outperforms current Bitcoin miners in practice, obtaining a significant increase in transaction fee revenues.