On Algorand Transaction Fees: Challenges and Mechanism Design

Maryam Abbasi, Mohammad Hossein Manshaei, Mohammad Ashiqur Rahman, Kemal Akkaya, Murtuza Jadliwala

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Algorand is a public proof-of-stake (PoS) blockchain with a throughput of 750 MB of transactions per hour, 125 times more than Bitcoin. While the throughput of Algorand depends on the participation of most of its nodes, rational nodes may behave selfishly and not cooperate with others. To encourage nodes to participate in the consensus protocol, Algorand rewards nodes in each round. However, currently Algorand does not pay transaction fees to participating nodes, rather storing it for future use. In this paper, we show that this current approach of Algorand motivates selfish block proposers to increase their profits by creating empty blocks. Such selfish behavior reduces the throughput of Algorand. Therefore, the price of Algo will decrease in the long run. Because of this price reduction, nodes will leave Algorand, compromising its security. Moreover, lack of an appropriate mechanism to pay fees to participants causes additional issues, such as lack of transparency, centralization, and inability of nodes to prioritize transactions. To overcome this challenge, we design a perfectly competitive market and propose an algorithm for computing optimal transaction fees and block size in Algorand We also propose an algorithm that reduces the cost of Algorand, without compromising its security. We further simulate the Algorand network and show how the optimal transaction fee and block size can be calculated in practice.

Original languageEnglish (US)
Title of host publicationICC 2022 - IEEE International Conference on Communications
PublisherInstitute of Electrical and Electronics Engineers Inc.
Pages5403-5408
Number of pages6
ISBN (Electronic)9781538683477
DOIs
StatePublished - 2022
Externally publishedYes
Event2022 IEEE International Conference on Communications, ICC 2022 - Seoul, Korea, Republic of
Duration: May 16 2022May 20 2022

Publication series

NameIEEE International Conference on Communications
Volume2022-May
ISSN (Print)1550-3607

Conference

Conference2022 IEEE International Conference on Communications, ICC 2022
Country/TerritoryKorea, Republic of
CitySeoul
Period5/16/225/20/22

Keywords

  • Algorand and Blockchain Incentive Design

ASJC Scopus subject areas

  • Computer Networks and Communications
  • Electrical and Electronic Engineering

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