Mempool Incentive Compatibility

Mempool Incentive Compatibility

Original Postby ajtowns

Posted on: February 27, 2024 06:48 UTC

The email delves into the technical specifics of Bitcoin's transaction fee mechanism, particularly focusing on how the minimum fee required for a transaction to be processed in the mempool is adjusted based on network congestion.

The minimum fee (minfee) is subject to a decay mechanism, which is dependent on the state of the mempool and operates on a halflife system. Initially set at a halflife of 12 hours, the rate at which the minfee decays accelerates when the mempool is less congested. Specifically, the halflife drops to 6 hours if the mempool occupancy falls below half of its capacity, and further decreases to 3 hours if the occupancy is below a quarter. This adjustment occurs only if a new block has been added since the last increase in minfee due to transaction eviction, aiming to reduce the minfee towards zero under these conditions.

Moreover, the communication outlines the variable time it takes for the minfee to revert to its original state after an increase, which is contingent on the initial size of the increase. For example, following a raise by 1sat/vb (satoshi per virtual byte), the minfee would take approximately 53 minutes to decay back to its previous level at a rate of 20sat/vb. This decay period shortens with higher rates; at 50sat/vb, it takes about 21 minutes, and at 100sat/vb, roughly 10 minutes are needed. Conversely, at a lower rate of 5sat/vb, the decay process is significantly prolonged, requiring around 4 hours. The detailed mechanics of this fee adjustment protocol are documented in the Bitcoin repository, with a direct link provided for reference: Bitcoin GitHub. This information underscores the dynamic nature of Bitcoin's fee market and how it adapts to varying levels of network activity.