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gavinandresen / MarginalTransactionCost.md
Last active December 6, 2021 20:52
Back-of-the-envelope calculations for marginal cost of transactions

Motivation

This gist tries to come up with a back-of-the-envelope estimate for how much it costs a miner to create larger, rather than smaller, blocks. An economically rational miner will only include transactions with enough fees to cover the cost to the miner of processing the transaction.

I hope this analysis helps solo miners and mining pool operators to reason about their transaction fee policies, and helps them estimate their 'charity cost' if they decide to include fee-free transactions in the blocks they create to promote more use of Bitcoin.

Uncertain numbers in this document are rounded to one digit of precision; this is meant to be an order-of-magnitude estimate; when I say that 100K of free transactions costs about $1, you should assume that the real number might be anywhere between 10 cents and 10 dollars.

Executive summary