Mempool Incentive Compatibility

Mempool Incentive Compatibility

Original Postby ajtowns

Posted on: March 20, 2024 01:08 UTC

The email delves into the intricacies of transaction fees within the context of blockchain mining, specifically focusing on the scenario where a user intends to replace a transaction with another that has a higher fee.

This situation is common in networks where transaction confirmation urgency varies, and users are willing to pay more for faster inclusion in a block. The discussion highlights an established practice among miners who currently demand a 100% increase in the absolute fee for accepting transaction replacements. This requirement, however, isn't uniform across all miners, as they operate in different pools which introduces variability in their actions and strategies.

A significant portion of the email is dedicated to exploring the implications of this fee structure through a detailed table. This table analyzes the probability of defecting from the 100% increased fee requirement based on pool hash rates ranging from 0.1% to 100%. The analysis is grounded in a mathematical formula that calculates expected revenue from either sticking with the original transaction fee or opting for a replacement transaction that pays a higher fee. The findings suggest that accepting transaction replacements could be more lucrative under certain conditions, challenging the current norm of demanding significantly higher fees for replacements.

Furthermore, the conversation touches upon the dilemma between what miners prefer (higher fees) and what users desire (lower fees). It questions the sustainability of the current model, suggesting that it is not optimal for either party. For miners, there's an indication that accepting some replacements with lower absolute fees could be beneficial, especially in scenarios involving competing pools or a unified pool environment like stratum v2. For users, any reduction in total fee requirements is advantageous.

Lastly, the email proposes a potential solution to reduce the total fee requirement for transaction replacements. By only needing to pay 40% of the total fees of the replaced transactions, pools with less than a 40% hashrate would find this arrangement favorable. However, this approach hinges on the ability to efficiently estimate mempool depth and next block feerate, which may necessitate advancements like cluster mempool technology. This proposition underscores a move towards optimizing the fee structure to balance the interests of both miners and users, advocating for simplicity and efficiency in implementation.