Auctions in the Context of Blockchain
Last Updated on 28. April 2023 by Martin Schuster
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.
