Summer-of-Bitcoin-Challenge

The problem

Bitcoin miners construct blocks by selecting a set of transactions from their mempool. Each transaction in the mempool:

• includes a fee which is collected by the miner if that transaction is included in a block
• has a weight, which indicates the size of the transaction
• may have one or more parent transactions which are also in the mempool

The miner selects an ordered list of transactions which have a combined weight below the maximum block weight. Transactions with parent transactions in the mempool may be included in the list, but only if all of their parents appear before them in the list.

Naturally, the miner would like to include the transactions that maximize the total fee.

Your task is to write a program which reads a file mempool.csv, with the format: <txid>,<fee>,<weight>,<parent_txids>

• txid is the transaction identifier
• fee is the transaction fee
• weight is the transaction weight
• parent_txids is a list of the txids of the transaction’s unconfirmed parent transactions (confirmed parent transactions are not included in this list). It is of the form: <txid1>;<txid2>;...

The OUTPUT from the program should be txids, separated by newlines, which make a valid block, maximizing the fee to the miner. Transactions MUST appear in order (no transaction should appear before one of its parents).

Hints

• The total weight of transactions in a block must not exceed 4,000,000 weight. For this exercise assume that there is no coinbase transaction.
• A transaction may only appear in a block if all of its parents appear earlier in the block.

Setup

The project requires Python 3.6, pip3 and virtualenv installed on the system.

• virtualenv .venv --python=python3
• source .venv/bin/activate
• pip install -r requirements.txt

Run the Models

• Run python ppo.py . Creates Fees_optimized_PPO.txt
• Run python dqn.py . Creates Fees_optimized_DQN.txt

each model produces a text file with optimized selection of hashes If you want to test Environment you can run python test_env.py

How It Works

There are two major components in the Project:

• Custom environment: The main time and effort to develop this project comes from designing a custom environment where the agents can do space exploration and with this we can solve this problem as a reinforcement learning task. This environment is implemented as a session in env.py. To describe the environment if the agent chooses a transaction which could decrease the Running Average of Total Aggregated Fees then my environment will award a score of -1 else the agent will get a reward of +1.

• Keeping the total weight of transaction less than 4,000,000.

• Also the action the agent can take is either to select a transaction or not depending on the rewards condition.

• Reinforcement Learning Algorithms: Here I employs an Proximal Policy Optimization (PPO) to navigate the environment searching for the best optimization at a given state. It is implemented in PPO.py. Also i have used Deep Q Learning (DQN) to create a comparitive study with the PPO algorithm. In my experiments PPO out performed DQN with a Good margin.

• All of these Models are created with stable_baselines3 modules for fast prototyping and its fairly a very good project to create a RL based MVP.

For more details on the inner-workings of the framework, see in this article on PPO and in this documentation on DQN

Results of Models

Before going to the results here are some important statistics to compare the solutions:

• Average Fees earned - So in starting i have checked the mean of fee in the dataset which is around 1456 with average weight of 2000 so if we do basic calculation then we can get 2000 transaction in a weight of 4,000,000 so if we have 2000 transactions with 1456 fee per transaction then total fee would be 2,912,000
• PPO Model Results - With this approach I have got around 3,444,175 fees with weight around 4,000,538.
• DQN Model Results - From this I got 3,096,998 fees with weight of 4,011,052.
• Both of the optimized fees is greater than the average also PPO model works best with a good of 532,175 as compared to 184,998 of DQN network

What could be improved

• Selection startegy or the way we can select the transaction from the mempool could be improved. In this project i have used Uniform distribution for selecting the items
• The way of judging the policy like i have used Running Mean we could use any other criteria
• Instead of binary reward of 1 , -1 we can give a dynamic reward between this range

Lastly I also created a baseline pure Dynamic Programming solution but the complexity of O(len(csv) * Max_weight) just couldn't able to produce results in meaning fulltime(takes hrs) compared to other approaches which are fairly faster(complete in mins).