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Blockchain

Saving fee markets with second-price auctions

Quick Take

  • With the majority of existing coins employing a disinflationary monetary policy, it is vital that vibrant, sustainable fee markets emerge
  • The second-price auction structure, coupled with mechanisms to disincentivize manipulation, may be the most sensible solution, engendering both positive long-term user experiences and stable miner revenue

Cryptocurrency transactions require fees. Without them, blockchains would be subject to flooding-based denial-of-service attacks, rendering networks functionally unusable. 

Transaction fees also serve a second purpose — subsidizing miner income. While fees are currently just a small percentage of income for most networks, this revenue stream will become increasingly relevant over time as protocols with disinflationary monetary policies phase out block rewards.