On further consideration, I think that auctions are likely to be an improvement even under the scenario where 100% of marginal mining rewards go to the miner. Maybe we should set that idea of spreading the fee over multiple blocks aside. Regardless of whether that would work or not, it is probably unnecessary and the side channel issues add a lot of complexity.

What you are saying in the paper is that it is not incentive compatible to force the miner to auction off all gas available up to the gas limit. Instead, the miner will auction of whatever quantity of gas maximizes his revenue under the constraint that he must sell all gas use in the block at one uniform gas price. I think that’s fine. I believe that this type of auction (miner chooses how much gas to sell) would be a dramatic improvement over the current arrangement.

Essentially what this achieves is movement from a regime of perfect price discrimination by miners to one where mining operates under the law of one price.

Going from price discrimination to the law of one price has the following consequences:

The miner gets much less revenue from txn fees and thus is harmed. High value users (rapid txns) will pay a dramatically lower average gas price. Low value users (slow txns) may pay a slightly higher gas price and some activity could be priced out of the market.

In general, it is not possible to say whether the combination of three consequences is socially beneficial or socially harmful. There is a benefit from restricting the miner’s ability to extract rents from users. There is a loss when users are priced out of the market. You need to weigh these two sides and in order to do this one needs to look at the demand and cost structure, which vary across contexts. For gas pricing, I think we are in a situation where restricting miner’s rent extraction yields a large net social benefit.

I peeked quickly at a recent block 6165683. For this block, using an auction to set a uniform gas price would lead to a gas price of 3.011 Gwei for all txns and would not price any txns out of the market, so there would be no dead weight loss. Instead it is just a pure transfer harming miners and benefitting users. Miner fee revenue would drop to about 10% of the current level, with the 90% being returned to high value users. Would need to automate analysis of many blocks to determine how representative this is. I expect there would turn out to be some activity that is price out of the market in some blocks, but that this would be of minimal consequence.

The key consequences would be a huge drop in user costs and a very small % decrease in miner fees (since miner rewards mostly come from the block subsidy).

In short, I think that an auction like this (where each individual miner can choose how much gas to auction off up to the gas limit) is a very promising approach to gas pricing.

Useful link providing background slides on price discrimination:

[http://people.stern.nyu.edu/dbackus/1303/slides_prdisc1.pdf]