Miner Collusion and the BitCoin Protocol

Bitcoin users can offer fees to miners who record their transactions in the block-chain. We document high variation of bitcoin fees, not only over time, but also within blocks. Further, the block-chain rarely runs at capacity, even though fees tend to be higher when blocks are fuller, so miners appear to be leaving `money on the table.' We present a simple model of price discrimination to explain our results. We note that mining pools facilitate collusive equilibria, and estimate that they have extracted least 200 million USD a year in excess fees by making processing capacity scarce.