IDEAS home Printed from https://ideas.repec.org/p/crs/wpaper/2024-10.html
   My bibliography  Save this paper

Latency Tradeoffs in Blockchain Capacity Management

Author

Listed:
  • Michele Fabi

    (Telecom Paris, CREST, IP Paris)

Abstract

We analyze the effect of block propagation latency on the performance and design of Nakamoto-style blockchains. Miners strategically choose block capacity, balancing the risk of invalidation from forking with transaction fee income. The model identifies a unique and symmetric Nash equilibrium block capacity, which increases with the ratio of block production time to transmission delay and decreases with the ratio of coinbase reward to transaction fee rate. We endogenize blockchain growth and derive the Fokker-Planck equation for pending mempool data. The results reveal a tradeoff between efficiency (low transaction load) and security (high miner participation). Reducing the coinbase reward while raising transaction fees improves efficiency but may weaken security. We also discuss testable implications and extend the model to include uncle block rewards and discrete latency.

Suggested Citation

  • Michele Fabi, 2024. "Latency Tradeoffs in Blockchain Capacity Management," Working Papers 2024-10, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2024-10
    as

    Download full text from publisher

    File URL: http://crest.science/RePEc/wpstorage/2024-10.pdf
    File Function: CREST working paper version
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Blockchain design; Nakamoto consensus; forks; coinbase; stochastic storage;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:crs:wpaper:2024-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Secretariat General (email available below). General contact details of provider: https://edirc.repec.org/data/crestfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.