Bitcoind Policy Estimator modes Analysis

Bitcoind Policy Estimator modes Analysis

Original Postby ismaelsadeeq

Posted on: June 12, 2024 15:32 UTC

The analysis of fee estimation data from Block 846887 to 847322, which encompasses a total of 435 blocks, provides critical insights into the performance of the Bitcoind Policy Estimator in both its conservative and economical modes.

The methodology employed involved logging and tracing fee estimates in both modes every minute, alongside tracking the percentile fee rates of all connected blocks. This extensive data collection effort was facilitated through branch implementation and cleaned datasets, which are accessible via a Data repository.

The study meticulously defined the terms conservative and economical modes for clarity. The conservative mode relies on a longer history of blocks to derive fee estimates, thus potentially offering higher fee rates that are more likely to meet the target but with less responsiveness to immediate fee market changes. Conversely, the economical mode aims to present lower estimates that adapt more swiftly to the prevailing fee market dynamics.

A significant portion of the analysis focused on evaluating overpaid, underpaid, and within-range estimates relative to the actual fee rates of the targeted blocks. The findings underscored a marked difference in the overestimation tendencies between the two modes. Specifically, the conservative mode exhibited a notably higher rate of overestimation compared to the economical mode. This disparity is vividly illustrated in logscale and absolute values graphs, which highlight the economic mode’s superior responsiveness to recent fee market adjustments.

One of the key discoveries pertains to the excessive overestimation by the conservative mode, particularly evidenced in the case of Block 847088. Here, the conservative mode's estimate drastically exceeded the block's 50th percentile fee rate, leading to significantly higher transaction costs for users. In stark contrast, the economical mode provided much closer and lower fee estimates. This discrepancy not only emphasizes the economic mode's efficiency but also underscores the potential financial repercussions for users relying on the conservative mode for their transactions.

The continuous trend of overestimation by the conservative mode raises concerns about its suitability as the default estimation mode, especially considering the current behavior of the fee market. The analysis strongly suggests a shift towards the economical mode to avoid unnecessary overpayments and to align more closely with real-time market conditions. For those interested in further exploration or replication of these findings, the study directs readers to the Fee Estimates Analysis repository, where the methodologies and analyses can be reviewed and utilized.