A recent study conducted by Miles Carlsten at Princeton University under the supervision of Arvind Narayanan and contribution from Matt Weinberg, sheds light on the issues associated with the bitcoin ecosystem, including mining, forking, block size and much more.

The report, titled “The Impact of Transaction Fees on Bitcoin Mining Strategies”, noted that reward can be earned through two sources – minting and transaction fees, adding that the bitcoin system has been so designed that minting reward diminishes over time.

The study analyses the model of the Bitcoin system after the minting reward has dropped to zero. It considers a scenario where transaction fee is the only revenue for miners, which arrives to the Bitcoin system at a constant rate. Further, it makes the assumption that the miners can claim all unclaimed transaction fees that they have heard of in their block, and that the network has no latency.

It describes a ‘petty compliant miner strategy’ when a rational miner would want to mine on a less wealthy block (which is left with more transaction fees unclaimed in the transaction fee pool) as opposed to the older block. It defines transaction fee pool as all of the transaction fees in the network that a block could potentially claim.

Carlsten explains that ultimately a natural equilibrium will be reached, where miners claim a certain amount of total transaction fees, leaving a backlog, CoinTelegraph reported. He adds that their selection would depend on the total value waiting in the backlog, leading to “potentially unbounded” confirmation times.

“In order to solve the problem, the backlog must contain a significant volume of value in transaction fees, not just a large number of transactions… The backlog must also be large enough that it rarely, if ever, empties. This means that users who submit transactions to be published may need to wait for potentially unbounded amounts of time for their transactions to make it into the Blockchain.”

Furthermore, it describes selfish mining/alternate mining strategy as tricking the other miners in the Bitcoin network to mine on top of a block that is guaranteed to not make it into the final longest chain. By doing so, the selfish miner is capable of exaggerating it own portion of the overall network hash-rate.

“When the selfish mining strategy is working, many of the blocks mined by the network will become orphaned, and because of this, on average, the inter-arrival times between blocks in the final longest chain will be larger. Because the transaction fees come into the system at a constant rate, this means that these blocks will be larger on average than blocks found with the default inter-arrival time. The immediate responsiveness of the strategy makes it significantly more tantalizing for miners to utilize”, it said.

Carlsten says that even with the assumption that transaction fees are large enough in magnitude to completely replace the minting reward, other problems can arise if the value to a miner of mining a block changes over the timescale of the block.

“The value to a miner for mining a block must not change with time…. the assumptions… that miners have the capability of claiming all possible transactions available in their next block. This closely relates to the block size debate that is ongoing at the time of writing. This assumption does not hold if the block size is small and there is a backlog of transactions. In this case, immediately after a block is found, all miners searching for the next block can immediately fill the block with transactions, making the system more similar to how it is with a block reward.”