There are many processes involved in blockchain technology. Behind every crypto transaction you make, from your first big investment in cryptocurrency to the everyday purchase of coffee with cryptocurrency, many processes and components are working behind the scenes, and one of those components is mempool.
While they may sound like the cryptocurrency version of the costumed antihero Deadpool from the Marvel universe, mempools are much more. In this mempool article, we’ll discuss what they are, what they do, and everything else about them.
all guys want is a girl who can read the mempool
— MAXX 𓂀 (@Web3Maxx) December 7, 2024
What Is A Mempool?
As we’ve already established, mempools are not in any way related to the hero with a similar name. However, mempools are one of the blockchain heroes in their unique way.
Let’s start with the name. Mempool is not a word on its own; it is simply an abbreviation for “memory pool.” Mempools serve as a temporary holding place for transactions that have yet to be confirmed. This means that if you’ve ever experienced any delays buying up an NFT of a cute dog or when you wanted to send crypto to your mom for her birthday, your transactions were held in a mempool during that period of delay.
Think of it as a waiting room, but for crypto transactions that have yet to be delivered.
How Bitcoin Transactions Are Verified
Now that you have a simple idea of what mempools are let’s go one step deeper and understand how they work. To fully grasp mempools, you have to know how crypto transactions work, so here’s how.
Transaction
The first step in this fascinating process is the transaction stage. Here, you are about to send your Bitcoin to another user, and you do so by creating a transaction with your Bitcoin wallet. The transaction contains details such as the amount of Bitcoin you’re sending, the recipient’s address, the transaction fee, etc. You then sign the transaction with your private key.
Validation
After signing your Bitcoin transaction, it’s broadcast to nodes on the Bitcoin network. Nodes receive and validate your transaction, ensuring you have enough Bitcoin to send and are not duplicating the transaction.
Mempool Check
Validated transactions are sent into the mempool. Every node has its mempool, which stores transactions until miners pick them up. In the mempool, miners can see which transactions are pending and decide the subsequent ones to be included in the next block.
Mining
When miners pick up transactions from the blockchain mempools, they bundle them into blocks. They then add these transactions to the blockchain by solving a complex mathematical problem called Proof of Work (PoW), which finds a random number called nonce that produces a specific hash when hashed with the block’s data.
Verification
After successful mining, the blockchain is broadcast to the network to be verified by other nodes. These nodes check to ensure that the block complies with the rules of the network. Verified blocks are added to the blockchain, and all transactions are confirmed.
Role and Structure of the Mempool
The role of mem pools is pretty simple: they store pending transactions. You might want to think of them as queues that prioritize transactions based on transaction fees and the time they enter the mempool.
There is an intricate relationship between Bitcoin miners and mempool. Miners play a big part in the structure of mempools and in sorting out any transaction stuck in mempool. They are responsible for picking up unconfirmed blockchain transactions from mempools and arranging them into blocks. Miners prioritize transactions after considering factors such as transaction size and fees. In most cases, the transactions with higher fees get added to the block first so that miners can maximize their profits.
There are strict Bitcoin protocols miners have to follow to validate transactions successfully. These protocols include checking for proper syntax, sufficient funds, and double-spending or double-transactions.
Miners can also set policies for managing their mem pools. For example, they can remove low-fee transactions to prevent the blockchain mempool from growing too large. Even though miners can set their policies, consistency is eventually maintained as transactions are distributed across the network.
Mempool Congestion and Its Effects
Network congestion is like traffic congestion, but instead of cars and motorcycles, you have thousands of transactions per moment. Network congestion is inevitable in any blockchain. Mempool and network congestion go hand in hand; in fact, congestion is why we have mempools in the first place.
Source: Mempool
Mempool congestion occurs when the number of transactions waiting to be processed exceeds the network's capacity. This causes a huge spike in confirmed transactions leading to a backlog of transactions waiting to be confirmed. It becomes a Mempool vs blockchain situation.
Congestions in mempools usually occur during peak network usage when numerous users send their transactions simultaneously. Naturally, this congestion comes with different effects, including;
Delayed Transactions: The same way cars don’t move in a traffic jam is the same way transactions stay put in blockchains when there’s congestion. This means your transaction may take longer to confirm, and you may be holding up the line at the coffee shop.
Increased Transaction Fees: Nothing moves processes faster than money, and the same is true when it comes to mempool congestion. Since miners prioritize transactions with higher fees, you may need to pay higher fees to incentivize miners to pick up your transactions a little faster so you can get your coffee and go before everyone on the line gets upset.
Network Slowdown: Strong mempool congestion can degrade overall network performance, leading to slower block times and reduced throughput.
Prioritization and Transaction Fees in Mempools
In Bitcoin transactions, the laws of supply and demand determine the fees; no single authority or body determines them. This is the essence of decentralization. But what this means for mempools is that there’s only so much block space; it can’t all go around. Hence, transactions have to compete for mempool prioritization through Bitcoin transaction mempool fees.
Miners are incentivized by mempool transaction fees, so they will naturally choose transactions with higher fees. But the good thing about this system of demand and supply is that it goes both ways. When the congestion in the mempools clears, the fees will decrease since there isn’t much competition.
Best Practices for Managing Transactions
The ideal way to ensure the best possible experiences with Bitcoin or Ethereum mempool transactions is to only transact when there is no congestion. You can find out these low congestion periods by using mempool monitoring tools. Transacting at low congestion periods means you pay lesser fees, enjoy fast mempool transaction fees, and have a good network experience. However, transacting during low congestion periods is not always possible, so here are a few tips to manage transactions better.
- Add High Fees
Money makes the world go round when it comes to blockchain transactions. If you add higher fees, your chances of a faster transaction are increased.
- Replace-by-Fee (RBF)
RBF in blockchain has a wildly different meaning from the acronym’s use in pop culture. Replace-by-fee works by creating a new transaction with the same input and output addresses but adding a higher fee than in the first transaction. The latest transaction replaces the original one in the mempool with the added advantage of better mempool prioritization because of the increased fees.
- Double Spend with Increased Fee:
Some transactions may not support RBF; in these cases, you can attempt to create a double spend with a higher fee. The downside to this method is that it is very tricky and requires special skill to get the miners to accept the double spend. Hence, it’s best left to the experts.
Following these methods allows you to enjoy the best of blockchain transactions without holding up that coffee line.
HODL Team
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