Fee Estimation

Bitcoin tx fees are auctioned per-block. Wallets need to estimate the fee rate (sat/vB) needed to confirm within n blocks.

Bitcoin Core's estimatesmartfee

bitcoin-cli estimatesmartfee 6 ECONOMICAL

Returns {"feerate": 0.00010000, "blocks": 6} (BTC/kvB → 10 sat/vB).

Algorithm (simplified)

1. Track every tx that enters mempool with its first-seen fee rate.
2. Track which fee rates resulted in confirmation within n blocks.
3. For target n: find lowest fee rate that successfully confirmed ≥ X% of historical txs within n blocks.

Modes: ECONOMICAL (less aggressive), CONSERVATIVE (more buffer).

Limitations:

• Cold-start: needs ~3 hours of running for reliable estimates.
• Doesn't see network-wide mempool, only local.
• Slow to react to fee spikes (uses historical data).

Mempool-based estimation

Sample getrawmempool true:

mempool = bitcoind.getrawmempool(verbose=True)
# build histogram of (fee_rate, vsize)
# find fee rate where cumulative vsize from top fits in 1 MB block
target_rate_for_next_block = histogram.percentile(at_vsize=1_000_000)

This reflects current mempool state, not historical. Better during fee spikes; volatile during quiet periods.

External services

• mempool.space API: GET /api/v1/fees/recommended → { fastestFee, halfHourFee, hourFee, economyFee, minimumFee }.
• mempool.space mempool blocks API: /api/v1/fees/mempool-blocks shows projected next ~10 blocks with median fee rate per block.
• BlockCypher, Esplora — similar.

External APIs offer real-time mempool view; trade-off is trust and availability.

Floor: incremental relay fee

incrementalrelayfee = 1 sat/vB (default)

Min fee rate for a tx to be relayed. RBF replacement must add at least this much per added vbyte beyond the original.

Smart-fee + smart-bump pattern

fee_rate = max(local_estimate(target=N),
               external_api(target=N))
broadcast(tx, fee_rate)
sleep(check_interval)
if not confirmed:
    new_rate = max(current_market_rate * bump_factor,
                   fee_rate + incrementalrelayfee + buffer)
    rbf_replace(tx, new_rate)

bump_factor typically 1.5x for proactive bumps.

Fee floor for relay vs mining

• Relay: 1 sat/vB minimum (mempool admit).
• Mining: miners include highest-fee txs first, no theoretical floor (some pools mine 1 sat/vB; others have policies).
• Compact fee floor: even at near-empty mempool, miners include zero-fee txs only via private submission (mempool.space accelerator).

Special cases

Lightning anchor / commitment

Pre-signed commitment tx has fixed fee at signing time. To bump:

• Spend anchor output with high-fee child (CPFP).
• Effective fee rate = (parent_fee + child_fee) / (parent_vsize + child_vsize).

Mempool eviction

Bitcoin Core evicts tx with lowest fee when mempool is full (maxmempool=300MB default). If your tx is evicted:

• Re-broadcast with same fee → may be re-rejected.
• Re-broadcast with bumped fee → admitted.

Per-block fee dynamics

• Fees follow block subsidy halvings loosely (more competition for fees as subsidy declines).
• Daily seasonality: fees lower on weekends, higher during US business hours.
• Event-driven spikes: ordinals waves (2023-2024), runes launch (April 2024) caused 1000+ sat/vB peaks.

Common bugs

• Using estimatesmartfee 1 (next-block) on a fresh node → returns -1 (insufficient history) → tx with no fee.
• Hard-coding sat/vB → fails when fees spike.
• Not accounting for mempool min: on rejection from mempool, your tx is silently lost; check testmempoolaccept first.
• Fee bumping without checking BIP125 rules → replacement rejected.

See also

• coin-selection/SKILL.md
• rbf-cpfp/SKILL.md
• ../../protocol/transactions/quick-ref/rbf-cpfp.md
• ../../infrastructure/mempool-space/SKILL.md