Bitcoin: How can a replace occur with a tx with lower fee and feerate?

Understanding Transaction Substitution in Bitcoin

Bitcoin’s consensus algorithm, Proof of Work (PoW), has been the backbone of the network for years. However, due to the growing demand for faster transaction times and lower fees, some miners have begun to explore alternative consensus algorithms known as Proof of Stake (PoS) or Delegated Proof of Stake (DPoS). In this article, we will examine how transactions are exchanged in Bitcoin with reduced fees and charges.

Segregated Witness (segwit)

A major factor in the low fees is the implementation of Segregated Witness (segwit), a lightweight version of Bitcoin’s traditional transaction verification (TV) code. Segwit significantly reduces the computational requirements for transaction verification, making it faster and more energy efficient.

Transaction Substitution Mechanism

If a substitution transaction is initiated with a lower fee and interest than the original transaction, it means that the miner has decided to spend less computational energy verifying the new transaction. In this scenario, the original transaction fees are paid by the sender, and the substitution transaction fees are maximized.

Here’s how it works:

• Original transaction: The user sends a transaction with higher fees than necessary (e.g. 50 BTC).

• Swap transaction: The same sender initiates a new transaction with lower fees (e.g. 20 BTC).

• Miner decides to replace

  :

• The miner selects the original transaction and reserves it for later use, while retaining ownership of the replacement transaction.

• The miner calculates the discounted fee based on the remaining balance of their mining pool.

Conditions for Exchange Transactions

To decide whether a transaction should be exchanged with lower fees, miners must meet certain conditions:

• Remaining Balance: The sender’s remaining balance on the network (i.e. the amount of coins they have spent), minus the original transaction fee.

• Miner’s Income: If the miner calculates the potential income from exchanging the transaction and it exceeds a certain threshold (e.g. 0.01 BTC), they choose to exchange it.

Impact on Transaction Order

When an exchange transaction is executed, it takes precedence over the original transaction on the blockchain. This ensures that lower-fee transactions are executed first, potentially reducing congestion and faster transaction times.

Conclusion

In short, Bitcoin’s consensus algorithm can accommodate low-fee and zero-fee transactions through its SegWit implementation, which reduces the computational requirements for transaction verification. If a swap transaction is initiated with lower fees than the original, it means that the miner has chosen to spend less computational power verifying the new transaction. The resulting lower fees are paid by the sender, allowing them to retain ownership of the swapped transaction and still receive their reward in the form of a block reward.

This mechanism allows miners to optimize the performance of their mining pool and reduce congestion without sacrificing security or decentralization. As Bitcoin continues to evolve, this dynamic will play a crucial role in shaping the future of the network.

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