Mempool Incentive Compatibility

Mempool Incentive Compatibility

Original Postby sdaftuar

Posted on: February 24, 2024 11:18 UTC

In a detailed exchange concerning the refinement of Replace-by-Fee (RBF) policies within Bitcoin's transaction protocol, two distinct policy suggestions were outlined to address the complexities of transaction replacement in the mempool.

The conversation primarily revolves around optimizing the mempool's efficiency and security against potential denial-of-service (DoS) attacks while ensuring transactions are processed fairly and economically.

The first proposed policy, termed the "Feerate Diagram Policy," aims to allow a replacement transaction to evict certain conflicts under specific conditions: if it results in an overall improvement in the mempool's fee rate diagram and increases the total fees in the mempool by at least the minimum relay fee multiplied by the size of the new transaction. This policy is designed to enhance the economic efficiency of the mempool while also providing robustness against DoS attacks by ensuring that only transactions which contribute positively to the mempool's fee rate and total fees are allowed to replace existing ones.

On the other hand, the "Next Block Policy" proposes allowing replacements if the new transactions would immediately be included in the next block, and none of the conflicting transactions would have been included. This approach is critiqued for potentially failing to guarantee incentive compatibility—meaning it might not always encourage behaviors that align with the network's overall health—and for possibly exposing the network to DoS attacks, particularly in scenarios where the total fees could decrease as a result of the replacement.

The discussion highlights significant concerns with the "Next Block Policy," noting its potential to undermine both incentive compatibility and network security. In contrast, the "Feerate Diagram Policy" is suggested as a more viable alternative, offering a solution that balances the need for economic efficiency with the imperative of maintaining network resilience.

Furthermore, the dialogue touches upon ongoing challenges related to transaction pinning—where low-fee transactions can become 'stuck' due to their association with higher-fee transactions—acknowledging that while current proposals do not fully resolve these issues, they mark steps towards a more functional and secure system. It suggests that future policies, potentially including those outlined in resources like the v3 relay policy (v3 transaction policy for anti-pinning), may offer further improvements in mitigating pinning risks and enhancing the network's overall integrity.

In conclusion, while acknowledging the complex nature of transaction management in Bitcoin's network, the conversation underscores the importance of developing RBF policies that prioritize both economic incentives and security. The "Feerate Diagram Policy" emerges as the favored approach, with the potential for future developments to address remaining challenges related to transaction pinning and DoS resistance.