There is an open debate upon whether to use Block Rewards or Transaction Fees for rewarding miners in a Proof-of-Work blockchain. Researchers at MLL show one reason to pick Block Rewards over Transaction Fees.

Researchers at MLL show that block rewards are preferable over transaction fees for rewarding miners in not only Bitcoin but any PoW-based blockchain protocol. They claim this by demonstrating that block rewards but not transaction fees were able to correctly incentivize miners in all cases to behave honestly. This property is termed as “Faithful Implementation”, in which following the protocol is the Nash Equilibrium for all miners.

Their findings are quite consistent with real-world observations, for example, we always observe a sharp drop in the network hash rate in Bitcoin each time the block reward is halved. In the most recent example, when the Bitcoin block reward was halved on 11th May 2020, the estimated network hash rate declined by about 25%. However, since Bitcoin readjusts the mining cost after every two weeks, the network hash rate started to recover after 26th May 2020 when Bitcoin reduced the difficulty of mining. You can take a look at the data here.

You can watch the authors present their work in the workshop on YouTube:

The full version of the paper is available on the official WINE website here:

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