Auctions in the Context of Blockchain
In the blockchain space, auctions are frequent. Even if we don’t recognize them immediately. In this topic, we introduce a few situations, where auctions take place:
- Transaction fees
- ICOs
- Token sales (e. g. NFTs or ERC20)
Transaction Fees
In most blockchains, transactions compete with each other for a slot in a block. Typically, transaction creators set a fee high enough to incentivize a miner to include this transaction in one of the next blocks. Since miners are rational and profit-driven, they include those transactions first that promise the highest reward.
If we strip away all the technical details, this boils down to a first-price auction. Those bidders with the highest bid (transaction fee) win and pay the stated fee.
ICOs
Initial Coin Offerings (ICO) have the challenge to find a price that clears the market (demand equals supply). A good means for that are auctions.
Token Sales
Token sales are similar to ICOs. They also need to determine a market-clearing price.
