Economics of Ethereum

Abstract

We provide comprehensive background regarding the Ethereum blockchain protocol, focusing especially on the economic incentives of participants. We begin by clarifying the transaction life-cycle from the user perspective, explaining how user transactions are submitted and settled on the blockchain. Thereafter, we explain how the Ethereum protocol selects proposers to propose blocks of transactions for inclusion on the blockchain and also attesters to vote for or against those blocks. We discuss both how the Proof-of-Stake protocol is used to select proposers and attesters, and also how the Gasper protocol is used to aggregate attester votes which thereby determine the finalized blockchain. Finally, we discuss how builders, searchers and relays have arisen to support and enhance the Ethereum block production process. Through our discussion, we clarify the economic trade-offs faced by each participant and the associated real-world decision variables for each participant.