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Economic Determinants of Ethereum Transaction Fees in the Priority Fee and Proof of Stake Periods

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Abstract

We analyze the economic determinants and dynamics of transaction fees in the Ethereum blockchain before and after two significant platform updates. The first is the August 2021 “London†upgrade, a switch from user-bid gas price (transaction fee per unit of complexity) to a fee model in which the gas price is the sum of an algorithmically determined base fee and an optional priority fee (tip) chosen by the user. The second update (“the Merge†) is the switch from proof-of-work to proof-of-stake transactions validation in September 2022. We estimate the impact on Ethereum transaction fees of both demand factors (block utilization, transaction type, ETH price in USD) and algorithmic supply-side factors (the block gas limit and base fee). Using data from nearly 900 million blockchain transactions, we find that the gas price is statistically significantly positively associated with the block utilization rate. A larger share of contract call transactions or legacy (user-bid gas price) transactions is linked with higher gas prices on average. On the supply side, a higher block gas limit is statistically significantly associated with lower gas prices.

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  • Alexander Karaivanov and Shayan Zarifian, 2024. "Economic Determinants of Ethereum Transaction Fees in the Priority Fee and Proof of Stake Periods," Discussion Papers dp24-02, Department of Economics, Simon Fraser University.
    • Handle: RePEc:sfu:sfudps:dp24-02
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    1. Anil Donmez & Alexander Karaivanov, 2022. "Transaction fee economics in the Ethereum blockchain," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 265-292, January.
    2. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    3. Elie Kapengut & Bruce Mizrach, 2023. "An Event Study of the Ethereum Transition to Proof-of-Stake," Commodities, MDPI, vol. 2(2), pages 1-15, March.
    4. Dimitrios Koutmos, 2023. "Network Activity and Ethereum Gas Prices," JRFM, MDPI, vol. 16(10), pages 1-14, September.
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