Bitcoind Block Policy Fee Rate Estimator Modes Analysis

This analysis examines the fee estimation data from Block 846887 to 847322, covering a total of 435 blocks, to analyze the difference between estimates from the Bitcoind Policy Estimator in conservative and economical modes.

Methodology

Logged and traced conservative and economical fee estimates every minute.
Logged and traced all connected blocks’ percentile fee rates (branch implementation).
Collected and cleaned data from both the traced and debug logs (data).
Analyzed the data by plotting Bitcoind conservative and economical estimates against the confirmed block target (50th–5th percentile fee rate range).

Definitions

Conservative mode: The estimatesmartfee RPC mode which considers a longer history of blocks. It potentially returns a higher fee rate and is more likely to be sufficient for the desired target, but it is not as responsive to short-term drops in the prevailing fee market.
Economical mode: The estimatesmartfee RPC mode where estimates are potentially lower and more responsive to short-term drops in the prevailing fee market.
Overpaid estimates: An estimate above the 50th percentile fee rate of the target block.
Underpaid estimates: An estimate below the 5th percentile fee rate of the target block.
Estimates within range: An estimate that falls between the 5th and 50th percentile fee rates of the target block.

Data Summary for Bitcoind `estimatesmartfee`

A total of 13,718 estimates were made from 2024-06-07 12:18:25 to 2024-06-10 07:48:05, spanning Block 846886 to Block 847321, with confirmation targets of 1 and 2 blocks.

Estimator	Overpaid Estimates	Underpaid Estimates	Estimates Within Range
Bitcoind Conservative	3760 (96.14%)	66 (1.69%)	85 (2.17%)
Bitcoind Economic	3033 (77.55%)	433 (11.07%)	445 (11.38%)

Log-Scale Graphs

Log-scale estimates block 846887–847087 — Estimates from block `846887` to `847087` plotted on a log scale.

Log-scale estimates block 847087–847287 — Estimates from block `847087` to `847287` plotted on a log scale.

Absolute Value Scale

Absolute scale estimates block 846887–847087 — Estimates from block `846887` to `847087` plotted using absolute values.

Absolute scale estimates block 847087–847287 — Estimates from block `847087` to `847287` plotted using absolute values.

You can recreate these graphs, summaries, and more from the repository using the analyse-bitcoind-estimates branch.

Key Findings

This empirical data shows that the economical mode has a much lower overestimation compared to the conservative mode.
These graphs show that the economical mode responds much quicker to recent fee market adjustments than the conservative mode.
A previous analysis used the economical mode, but this was incorrectly reported in Bitcoin issue #30009.

Worst-Case Overestimation Example

Block 847088 was confirmed with a 50th percentile fee rate of 38.7 sat/vB.

estimatesmartfee conservative mode: 505.7 sat/vB
estimatesmartfee economical mode: 48.3 sat/vB

Worst-case fee estimate comparison — Worst-case overestimation example for block `847088`.

Many transactions paid this high fee to get included, as seen here.

For an average P2WPKH 2-input 2-output transaction weighing approximately 208.5 vbytes, the costs are:

Bitcoind economical estimate: 208.5 × 48.3 = 10071 satoshis (≈ $6.73)
Bitcoind conservative estimate: 208.5 × 505.7 = 105438 satoshis (≈ $70.52)

Using the conservative estimate results in paying 15× more than necessary. This excessive overestimation persists for extended periods, causing many transactions to significantly overpay.

Persistent conservative overestimation — Persistent overestimation by the conservative estimator across multiple blocks.

This analysis reveals that the overestimation by the conservative mode is not an isolated incident but a recurring trend. Given the current fee market behavior, this warrants modifying the default estimation mode to economical to reduce systematic overpayment.