Unruly by Design: Fee Volatility and Strategic Attacks in Bitcoin Mining

Bitcoin's security rests on a simple premise. With no central authority to enforce the rules, the system relies on incentive compatibility: honesty has to be the most profitable strategy for miners. In practice this means a miner should always be better off extending the longest chain than doing anything else, and it is this alignment that lets a decentralized network of competitors agree on a single, shared record of transactions. The assumption is rarely questioned. But it quietly depends on how miners are paid, and that is changing.

In a recent working paper with Prof. Fabian Schär and Prof. David Yermack, we ask what happens to this premise as transaction fees, rather than the fixed block subsidy, become the dominant source of mining revenue.

When the Last Block Is Worth More Than the Next

Miners earn a fixed subsidy plus the fees of the transactions they include. The subsidy is smooth and predictable. Fees are not. They can be highly volatile, so some blocks are far more valuable than others.This can create skewed incentives. If a block that was just found captured an unusually rich set of fees, and the transactions left over for the next block are thin, a miner can earn more by trying to re-mine that rich block than by building on top of it. Extending the chain, the behavior Bitcoin depends on, may no longer be the most profitable option.

Evidence From the Network

We test this using a unique dataset of mempool transactions recorded directly from the Bitcoin network between 2017 and 2025. When the fee gap between one block and the next is large, competing blocks at the same height, known as block races, become more common. The next block also becomes less likely to appear in its first seconds, consistent with mining power quietly peeling away to fight over the block just found instead of extending the chain.

The effect is small today, because the subsidy still dominates. But it halves every four years, and fees are set to take over. The instability we document is written into Bitcoin's issuance schedule itself. That leaves an open question: how unruly does Bitcoin become once fees are all that remain?

The paper is linked below. Comments and feedback are very welcome:

Read the Full Paper

About the Author

This blog post was written by Dario Thürkauf, PhD Student and Research Assistant at the Center for Innovative Finance, University of Basel.

The underlying paper was co-authored by Prof. Fabian Schär, Managing Director of the Center for Innovative Finance at the University of Basel; Prof. David Yermack, Professor of Finance at New York University; and Dario Thürkauf.