Mempool Based Fee Estimation on Bitcoin Core

The discussion revolves around the insights and research conducted by Kalle Alm, particularly highlighted in his presentation at Scaling Bitcoin 2017. Alm's work delves into optimizing fee estimation through mempool state analysis, offering a comprehensive look into improving transaction fees in the Bitcoin network. His findings, detailed across various formats including slides, a transcript, and a video presentation, provide a rich resource for understanding this complex topic. The accessible content can be found through the provided links: Slides, Transcript, and Video.

One of the noteworthy strategies proposed by Alm involves the use of Replace-By-Fee (RBF) mechanisms to determine the most efficient fee rate for Bitcoin transactions. Specifically, he suggests selecting the minimum value between the confirmed estimate, which is derived from reliable data such as Bitcoin Core's estimatesmartfee, and the mempool estimate, which though potentially vulnerable to manipulation and other risks, provides a real-time perspective of the mempool state. This method aims to swiftly adjust fee rates downwards without escalating the risk of manipulation by miners or external parties.

Furthermore, Alm touches upon the practical considerations of using RBF, emphasizing its non-financial implications. He notes that RBF transactions can inadvertently reveal information about which output is change, requiring users to either remain online for potential fee adjustments or to have pre-signed incremental fee bumps. This highlights the nuanced trade-offs between optimizing fee costs and maintaining transaction privacy and user convenience.