Activity Overview

This hands-on simulation teaches students the economic principles behind blockchain block production. Teams compete to build the most profitable block while respecting size constraints, mirroring the real-world challenges faced by validators and miners.

Learning Objectives:

  • Understand how transaction fees create economic incentives for block producers
  • Experience the knapsack optimization problem inherent in block construction
  • Recognize trade-offs between transaction fees and block space consumption
  • Apply economic reasoning to resource allocation under constraints

Pre-Class Preparation Checklist

  • ☐ Print Materials (1 week before):
    • Transaction cards: Print one deck per team on cardstock (20 cards per deck)
    • Block template worksheets: 1 per team
    • Hash calculation guides: 1 per team (or 1 per 2 teams)
    • Instructions: Post on LMS or print 1 per team
  • ☐ Cut Transaction Cards (day before): Cut out all 20 cards for each team deck
  • ☐ Prepare Team Assignments (day before): Divide class into teams of 3-4 students
  • ☐ Setup Classroom (before class):
    • Arrange seating for team work (clusters or tables)
    • Ensure calculators are available (or allow phones)
    • Test any presentation technology for team presentations
  • ☐ Prepare Optimal Solution (before class): Solve the activity yourself to verify the answer key

Detailed Timeline (55 minutes total)

0:00-0:05
(5 min)
Introduction & Context
  • Briefly explain real-world block production and validator economics
  • Emphasize this is a competitive activity - teams will be ranked
  • Distribute materials and announce team assignments
  • Clarify the 10-unit block size constraint
0:05-0:10
(5 min)
Phase 1: Setup & Transaction Review
  • Teams spread out transaction cards and review all 20 options
  • Students should start identifying patterns (high fee density, large size traps)
  • Circulate to answer clarification questions only (don't give strategy hints)
0:10-0:30
(20 min)
Phase 2: Block Construction
  • Teams select transactions and fill out block template
  • Encourage students to calculate fee-per-unit ratios
  • Watch for teams exceeding the 10-unit limit - remind them to check
  • Give 10-minute and 5-minute warnings
0:30-0:40
(10 min)
Phase 3: Hash Calculation & Peer Verification
  • Teams calculate block hash using simplified formula
  • Pair teams for peer verification (Team A verifies Team B, vice versa)
  • Collect completed worksheets
  • Quickly tally total fees to determine rankings (can do while teams present)
0:40-0:50
(10 min)
Team Presentations (2 min each, 5 teams)
  • Each team briefly presents their strategy and results
  • Focus on top 3 teams and 1-2 others with interesting approaches
  • Ask follow-up questions about trade-offs they faced
0:50-0:55
(5 min)
Debrief & Optimal Solution Reveal
  • Announce winning team (highest valid total fees)
  • Reveal optimal solution and explain the strategy
  • Connect to real blockchain economics (MEV, fee markets)
  • Preview next topic (if applicable)

Optimal Solution & Answer Key

Note: This is a discrete knapsack problem, so the optimal solution requires testing combinations, not just sorting by fee-per-unit ratio.

Strategy 1: Top Fee-Per-Unit (Near-Optimal)

Select all 1-unit transactions with highest fees:

Selected Transactions:
TX_001 (0.080 ETH, 1 unit)
TX_002 (0.075 ETH, 1 unit)
TX_003 (0.070 ETH, 1 unit)
TX_004 (0.065 ETH, 1 unit)
TX_005 (0.060 ETH, 1 unit)
TX_006 (0.055 ETH, 1 unit)
TX_010 (0.050 ETH, 1 unit)
TX_011 (0.045 ETH, 1 unit)
TX_014 (0.040 ETH, 1 unit)
TX_015 (0.035 ETH, 1 unit)

Total Size: 10 units
Total Fees: 0.575 ETH
Block Hash: 1+2+3+4+5+6+0+1+4+5 = 31

Strategy 2: Mixed Approach (Alternative Optimal)

Include some 2-unit transactions with high fees:

Selected Transactions:
TX_001 (0.080 ETH, 1 unit)
TX_002 (0.075 ETH, 1 unit)
TX_003 (0.070 ETH, 1 unit)
TX_004 (0.065 ETH, 1 unit)
TX_005 (0.060 ETH, 1 unit)
TX_006 (0.055 ETH, 1 unit)
TX_007 (0.100 ETH, 2 units)
TX_010 (0.050 ETH, 1 unit)

Total Size: 10 units
Total Fees: 0.555 ETH
Block Hash: 1+2+3+4+5+6+7+0 = 28
Teaching Point: Strategy 1 (all 1-unit transactions) is optimal at 0.575 ETH. However, Strategy 2 is only slightly worse (0.555 ETH) and might seem appealing because TX_007 has the highest single fee. This demonstrates the knapsack optimization challenge - sometimes passing up a high-value item allows you to fit more total value.

Expected Student Performance

Performance Level Total Fees (ETH) Strategy Used
Optimal 0.575 All top 1-unit transactions
Near-Optimal 0.540-0.570 Mostly high fee density, minor suboptimal choices
Good 0.490-0.539 Mixed 1-unit and 2-unit, reasonable strategy
Below Average 0.400-0.489 Included some poor fee-density transactions
Poor < 0.400 Many large, low-fee transactions or unfilled block

Common Student Mistakes & How to Address

1. Exceeding Block Size Limit

Why it happens: Students get focused on fees and forget to track cumulative size.

Prevention: Remind teams at 15-minute mark to verify their size calculation. Emphasize during intro that invalid blocks cannot win.

Grading: Maximum 12/15 points for Fee Optimization if block is invalid.

2. Falling for the "High Fee Trap"

Why it happens: TX_016 (0.150 ETH, 3 units) and TX_017 (0.140 ETH, 3 units) look attractive but have poor fee density.

Teaching moment: In debrief, show that three 0.050+ ETH transactions (3 units total) beat TX_016 (0.150 ETH, 3 units) with 0.150+ ETH combined.

3. Hash Calculation Errors

Common mistakes:

  • Using full TX number (001, 007) instead of last digit (1, 7)
  • Arithmetic errors in addition
  • Forgetting to include all selected transactions

Prevention: Peer verification catches most of these. Have hash guide readily available.

4. Leaving Block Space Unused

Why it happens: Teams fill to 8-9 units and can't find a 1-unit transaction they haven't already used, so they stop.

Teaching point: In real blockchains, validators always try to fill blocks completely because any included transaction adds revenue at essentially zero marginal cost.

5. Not Calculating Fee-Per-Unit Ratio

Why it happens: Students dive into selection without systematic analysis.

Intervention: If teams seem stuck at 5-minute mark, suggest calculating fee ÷ size for a few transactions to guide their decisions.

Facilitation Tips

Maintain Competition: Emphasize this is a race - the team with highest fees wins. This motivates students and mirrors real-world validator competition.
Circulate Strategically: During Phase 2, visit each team briefly. Don't give away strategies, but ensure they understand the constraints and task.
Time Management: This activity works best when students feel mild time pressure. Stick to the timeline and give verbal warnings at key points (10 min remaining, 5 min remaining).
Avoid These Pitfalls:
  • Don't reveal optimal solution before presentations - let teams discover strategies
  • Don't let Phase 2 run too long - 20 minutes is sufficient
  • Don't skip peer verification - it reinforces checking work and catches errors

Discussion Questions for Debrief

Use these to connect the simulation to real blockchain economics:

  1. "Why did Strategy 1 beat Strategy 2, even though TX_007 had a higher individual fee?"
    → Teaches opportunity cost and discrete optimization
  2. "In real blockchains, block size limits exist. Why do you think this is?"
    → Discusses network propagation, verification time, decentralization trade-offs
  3. "What would happen if there was no block size limit?"
    → Explores centralization risks, storage costs, spam attacks
  4. "How might validators react during times of high network congestion?"
    → Introduces fee markets, priority gas auctions, MEV concepts
  5. "We used a simplified hash. What properties do real cryptographic hashes have?"
    → Bridges to next topics: mining, proof-of-work, consensus

Extensions & Variations

For Advanced Classes:

  • Add Priority Levels: Some transactions must be included (e.g., protocol transactions)
  • Introduce MEV: Certain transaction orderings yield bonuses (front-running simulation)
  • Dynamic Constraints: Mid-activity, announce block size reduces to 8 units (simulates network change)

For Larger Classes (>30 students):

  • Have multiple teams present simultaneously in breakout areas
  • Create a tournament structure: preliminary round, then finals with top 3 teams

For Virtual/Hybrid Delivery:

  • Provide transaction data as a spreadsheet for breakout rooms to use
  • Use shared Google Docs for block templates
  • Teams submit via online form, instructor quickly ranks in spreadsheet

Assessment & Grading Tips

Quick Ranking Method: During presentations or right after collection, create a simple spreadsheet:
  • List team names
  • Enter each team's total fees
  • Sort by fees (descending)
  • Award points based on rank per rubric
Handling Invalid Blocks: If a team exceeds 10 units:
  • Award max 12/15 points for criterion 2 (Fee Optimization)
  • Deduct points from criterion 1 (Valid Block Construction)
  • Note in feedback that constraint violations disqualify in real blockchains
Generous Presentation Grading: Focus on understanding, not polish. Award full points if students can explain their reasoning, even if strategy was suboptimal.

Connection to Course Concepts

This activity reinforces:

  • Lecture 2-3 (Blockchain Fundamentals): Block structure, transaction inclusion, hashing
  • Lecture 4-5 (Consensus Economics): Validator incentives, fee markets, block rewards
  • Lecture 6 (Mechanism Design): Incentive compatibility, Nash equilibrium in fee bidding

Prepares students for:

  • MEV (Maximal Extractable Value) discussions
  • EIP-1559 and fee burning mechanisms
  • Layer 2 scaling solutions and their economic models
  • Proof-of-Stake validator economics

© Joerg Osterrieder 2025-2026. All rights reserved.