I've been thinking about RBF for a very long time[1], and it's been fun to see other people's thoughts on the topics. Here's my current thinking about this, and proposal for how we should update the rules.
### Changing the Rules? How to Change Them
Regarding how to change them, Bram and aj are right -- we should move to a model where transaction relay candidates are evaluated on their net increase in fees per byte paid, and remove the requirement that the gross fee of the preceding transaction is met or exceeded.Our current ruleset is over complicated because it attempts to solve two problems at once: the miner's best interests (highest possible fee take) and relay policy.I believe this is a mistake and the mempool should change its goals. Instead, the mempool relay design for RBFs should be built around 1) increasing the the per-byte fees paid of a transaction and 2) providing a simple policy for applications building on top of bitcoin, such that knowledge of the mempool is not required for successfully issuing relay-able RBF transactions.(A simple "must increase the per-byte feerate" heuristic for RBF relay candidates has the nice benefit of being easy to program to on the application side, and only requires knowledge of the previous candidate transaction, not the entire mempool or any previous tx's relative position within it.)Finally, when blockspace is competitive , this simple policy ensures that the per-byte value of every subsequent relayed transaction increases the per-byte value of pending bytes for the next block. This provides a measure of DoS protection and ensures that every relayed byte is more valuable (to the miner/network) than the last.*The only time that RBF is critical for relay is during full block periods -- if there's not enough transactions to fill a block, using RBF to ensure that a transaction is mined in a timely manner is moot. As such, RBF rules should not be concerned with low-block environments.### Mempools and RelayThe mempool currently serves two masters: the profit motive of the miner and the relay motive of a utxo holder. It is in the interest of a user to send the miner a high per-byte tx, such that it might end up in the next block. It is in the miner's best interest to include the highest per-byte set of transactions in their block template.There is some conflation here in the current RBF policies between what is in the mempool and what is considered a candidate for the block template. If a miner has already included a more profitable package of txs into their block template than a more valuable per-byte tx that the network has relayed to them, it should be the responsibility of the block template constructor to reject the new proposed tx, not the nodes relaying the transaction to said miner.This is a policy that the miner can (and should) implement at the level of the template construction, however.Is it the responsibility of the mempool to provide the best "historical" block opportunity for a miner (e.g. the highest paying block given all txs it's ever seen)? I would say no, that the ability of a utxo owner to re-state the spend condition of a pending transaction is more important, from a use-case perspective, and that the mempool should concern itself solely with relaying increasingly more profitable bytes to miners. Let the miners concern themselves with deciding what the best policy for their own block construction is, and the mempool with relaying the highest value bytes for the network. Net-net, this will benefit everyone as it becomes easier for users to re-submit txs with increasingly greater feerates, creating more active competition for available blockspace as more applications are able to include it as a feature (and it works, reliable, as a relay mechanism).### Packages and RBFPackages make the increasing per-byte rule less of a guarantee that increasing the per-byte value of a single transaction will net a given miner more fees than including the entire package.
Let's decompose this a bit. It's helpful to think of tx packages as 'composable txs'. Basically when you consider a 'package' it is actually a large tx with sub-components, the individual txs. As a 'composed tx', you can calculate the per-byte feerate of the entire set. This is the number that you, as someone issuing an RBF, would need to beat in order to move your tx up in the pending block queue.
RBF, however, is a transaction level policy: it allows you to replace any *one* component of a package, or tree, with the side effect of possibly invalidating other candidate txs. If the 'composed tx' (aka package) had a net per-byte value that was higher than the new replacement transaction because of a leaf tx that had an outsized per-byte feerate, then it would be more profitable for the miner to have mined the entire package rather than the replacement.
This edge case complicates the picture for the miner. Considered from the viewpoint of the user issuing the RBF, however, it is far simpler. In the ideal case, a person is issuing an RBF because the previous tx tree, even with its high fee sub-component, was not a candidate for the next block. And, in some cases, increasing the sub-component's per-byte feerate will not achieve the goal of moving the tx any closer to being mined. It's only by increasing the feerate above the present feerate of the candidate plus desendents (tx package) that the transaction will advance in the queue.
While not uncomplicated, this is a simple enough metric for a wallet to track, and does not require any knowledge of the current mempool to effectively surpass. It's the wallet's responsibility to track this though; failure to take descendants into account when deciding on the next per-byte feerate for an RBF *will* mean that your RBF will be ineffective at achieving the goal of getting your UTXO spent. Any wallet is incentivized to always provide a higher per-byte feerate than the 'composed tx' (tx and its descendants), so as to ensure an actual improvement in the unconfirmed transaction's position in the block queue, so to speak.
### RBF and DoS
Admittedly, changing these rules will increase the number of times that any UTXO is eligible to be retransmitted (relayed) via the bitcoin node network. Strictly increasing the per-byte feerate however ensures that this re-relay is increasingly more expensive to the UTXO owner, however.
### in exitus
These are the things I've been thinking about with regards to RBF. I hope they can help to highlight the challenges in the RBF design space a bit more clearly, as well as spelling out the case for using a simple heuristic such as "solely increasing per-byte feerate" as a good candidate for the revised RBF policy.
~niftynei