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

We develop a model of aberrant behavior by Bitcoin miners and test it with a new 2017-2025 dataset. Miners’ rewards, comprised partly of user fees, exhibit variability across blocks of transactions. When large reward disparities exist between adjacent blocks, miners have incentives to attempt alternative versions of prior blocks and claim other miners’ rewards for themselves. Regression analysis shows that fee differentials are associated with these attacks and longer waiting times between blocks. These patterns imply potential destabilization of the Bitcoin blockchain as future mining rewards become more volatile due to gradual withdrawal of fixed block subsidies.