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charset="Windows-1252" Content-Transfer-Encoding: quoted-printable It is clear that charging min fee won't maximize total miner's fees because= it ignores heterogeneity in willingness to pay among bidders within the sa= me block. Also, spamming can still occur by setting a large number of trans= actions to the min fee. Competition between spammers might drive up the min= fee, which is really where the positive effect comes from in this model. A two-part pricing scheme involving a fixed fee per transaction plus variab= le fee per byte is likely to work much better. The fixed fee component rais= es the cost of micro-transactions substantially and deters spamming of the = mempool. Also, revenue is not lost from people with higher willingness to = pay. Chenxi ________________________________ From: William Morriss Sent: Wednesday, November 29, 2017 11:05 PM To: Chenxi Cai Cc: Bitcoin Protocol Discussion Subject: Re: [bitcoin-dev] BIP Idea: Marginal Pricing On Wed, Nov 29, 2017 at 9:52 PM, Chenxi Cai > wrote: Hi All, Auction theory is a well-studied problem in the economics literature. Curre= ntly what bitcoin has is Generalized first-price auction, where winning bid= ders pay their full bids. Alternatively, two approaches are potentially via= ble, which are Generalized second-price auction and Vickrey=96Clarke=96Grov= es auction. Generalized second-price auction, where winning bidders pay the= ir next highest bids, reduces (but not eliminate) the need for bidders to s= trategize by allowing them to bid closer to their reservation price. Vickre= y=96Clarke=96Groves auction, a more sophisticated system that considers all= bids in relation to one another, elicit truthful bids from bidders, but ma= y not maximize miners' fees as the other two systems will. Due to one result called Revenue Equivalence, the choice of fee design will= not impact miners' fees unless the outcomes of the auction changes (i.e, t= he highest bidders do not always win). In addition, the sole benefit of sec= ond-price auction over first-price auction is to spare people's mental trou= bles from strategizing, rather than actually saving mining fees, because in= equilibrium the fees bidders pay remain the same. Therefore, in balance, I= do not see substantial material benefits arising from switching to a diffe= rent fee schedule. Best, Chenxi Cai Changing the bidding system to the marginal price allows us to supersede th= e block size limit, which changes the outcome of the auction, as different = transactions are included. --_000_CY4PR1201MB019798D1013AE2296AC0F30086380CY4PR1201MB0197_ Content-Type: text/html; charset="Windows-1252" Content-Transfer-Encoding: quoted-printable


 

It is clear that charging m= in fee won't maximize total miner's fees because it ignores heterogene= ity in willingness to pay among bidders within the same block. Also, s= pamming can still occur by setting a large number of transactions to the min fee. Competition between spammers might drive u= p the min fee, which is really where the positive effect comes from in this= model. 


A two-part pricing scheme involv= ing a fixed fee per transaction plus variable fee per byte is likely to wor= k much better. The fixed fee component raises the cost of micro-transaction= s substantially and deters spamming of the mempool.  Also, revenue is not lost from people with high= er willingness to pay. 


Chenxi

From: William Morriss <= ;wjmelements@gmail.com>
Sent: Wednesday, November 29, 2017 11:05 PM
To: Chenxi Cai
Cc: Bitcoin Protocol Discussion
Subject: Re: [bitcoin-dev] BIP Idea: Marginal Pricing
 
On Wed, Nov 29, 2017 at 9:52 PM, Chenxi Cai = <Chenxi_Cai@liv= e.com> wrote:

Hi All,


Auction theory is a well-stu= died problem in the economics literature. Currently what bitcoin = has is Generalized first-price auction, where winning bidders pay thei= r full bids. Alternatively, two approaches are potentially viable, which are Generalized second-price auction and Vickrey= =96Clarke=96Groves auction. Generalized second-price auction, where wi= nning bidders pay their next highest bids, reduces (but not eliminate)= the need for bidders to strategize by allowing them to bid closer to their reservation price. Vickrey=96Clarke=96Groves a= uction, a more sophisticated system that considers all bids in relatio= n to one another, elicit truthful bids from bidders, but may not maximize m= iners' fees as the other two systems will. 


Due to one result calle= d Revenue Equivalence, the choice of fee design will not im= pact miners' fees unless the outcomes of the auction changes (i.e, the= highest bidders do not always win). In addition, the sole benefit of second-price auction over first-price auction is to spare = people's mental troubles from strategizing, rather than actually savin= g mining fees, because in equilibrium the fees bidders pay remain the same.= Therefore, in balance, I do not see substantial material benefits arising from switching to a differ= ent fee schedule. 


Best,

Chenxi Cai



Changing the bidding system to the marginal price allows us to superse= de the block size limit, which changes the outcome of the auction, as diffe= rent transactions are included.
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