Thread by @rot13maxi

Consensus Rules vs Relay Policy

There are a lot of new people arguing on X about relay policy these days (and some old people who have suddenly returned). I see a lot of conflation and confusion between Consensus Rules and Policy. Here's a short explainer of each 🧵

Consensus Rules are rules that full nodes enforce that determine which transactions are valid. Put another way, if your node receives a block containing transactions that violate consensus rules, your node will reject the block.

Suppose your node has a blockchain of length 100. It receives a new block that builds on the 100th block. But it contains a transaction that violates some consensus rule. Your node will discard that block and keep waiting for a 101st block to arrive.

Some examples of consensus rules:
- the block subsidy right now is 3.125 BTC. If a miner tries to print more, its invalid
- transaction can only spend unspent coins (no double spending)
- locking scripts have to be satisfied (which comes with its own rules)
- Block size limit

Relay Policy or Mempool Policy controls what unconfirmed transactions your node will relay to other nodes. Bitcoin nodes form a peer-to-peer network with other nodes. When a node broadcasts a transaction, it is sent to all its peers, who send it to all their peers, and so on.

Eventually the transaction reaches a node who puts the transaction in a block. Note that miners can put any transactions they want in a block, including none and including transactions that they receive through some other mechanism (see Mara Slipstream or Rebarlabs shield)

Once a transaction is in a block, your node will store and relay it regardless of policy, but until it is confirmed, your node applies policy to decide whether or not to pass it along on the p2p network.

Here are some policy examples:
- the longest chain of unconfirmed parent/child transactions (25)
- largest unconfirmed tx package
- transactions using OP_SUCCESS opcodes
- max op_return size/count
- max items on the witness stack
- scriptpubkey templates

Note that policy is a SUBSET of consensus-valid transactions. This is important: There might be a transaction that your node will NOT relay on the P2P network, but once in a block your node will happily accept. This is important for softfork upgrades, censorship resistance, etc.

Hope this helps!