Empirical Data Analysis of Fee Rate Forecasters for ASAP (next-block) Fee Estimation

Empirical Data Analysis of Fee Rate Forecasters for ASAP (next-block) Fee Estimation

Original Postby ismaelsadeeq

Posted on: July 3, 2024 17:39 UTC

The analysis focuses on evaluating the performance of various fee rate forecasters over a span of 1293 blocks, specifically from block 848920 to 850213.

It aims to compare these forecasters against the standard set by the Bitcoind Policy estimator and examines the potential improvements offered by a new proposal detailed at GitHub. The forecasters analyzed include Mempool, Mempool Last 10 Minutes, Last Block, and Last 6 Blocks, each utilizing different methodologies to predict fee rates based on transaction data and historical block information.

The effectiveness of these forecasters was measured through their ability to predict low and high priority fee estimates compared with actual transaction fees within confirmed blocks. Specifically, the analysis categorized predictions as overpaid, underpaid, or within the target range, depending on their alignment with the 5th to 50th percentile fee rates of the transactions in the target block.

For instance, the Mempool forecaster predicts fee rates based on all transactions in the mempool, considering the 50th and 25th percentile mining scores for high and low fee rate estimates respectively. This method showed a significant degree of accuracy, with a majority of its estimates falling within the desired target range. The study also explored variations such as adjusting the priority level based on recent transaction activity and historical block mining times to potentially enhance prediction accuracy.

The analysis revealed that while some forecasters, like the Mempool and Mempool Last 10 Minutes predictors, demonstrate high levels of accuracy especially for high priority estimates, others such as the Last Block and Last 6 Blocks forecasters exhibit weaker performance due to rapid changes in mempool conditions. Moreover, the application of the Bitcoind conservative mode as a failsafe mechanism appears to offer better reliability than relying solely on the last six blocks' data, which can be susceptible to miner manipulation and sudden shifts in transaction volume.

A key suggestion from the analysis is the development of a "Smart Mempool-Based Forecaster" that adjusts its fee rate estimates based on the timing and composition of recent transactions relative to block generation times. This approach suggests targeting higher percentiles during periods of high transaction inflow or when recent blocks were mined quickly, and lower percentiles when the opposite conditions apply. However, the effectiveness of such heuristics requires further validation through empirical data analysis.

Ultimately, this comprehensive review underscores the complexity of accurately predicting Bitcoin transaction fees and highlights the potential for sophisticated forecasting models to improve user experience by minimizing overpayments and ensuring timely transaction confirmations.