If you have dabbled in cryptocurrencies and Bitcoin long enough, you may have encountered the term “mempool” on different occasions. But what does this term mean? Understanding the mempool and how it functions will help you better understand how transactions are handled and give you greater control over them. This article will examine what a mempool is, its functions, how it works, and its impact on transactions. Let’s get started.
What Is A Mempool?
A mempool, or memory pool, is the mechanism utilized by a node to store information related to unconfirmed transactions. In a sense, the mempool acts as a type of “waiting room” for transactions yet to be included in a block. Although first used by Bitcoin, the term has also been adopted by the Ethereum blockchain. Meanwhile, other blockchain networks also have their own terminology for the mempool. Geth has christened the mempool as the “transaction pool,” while Parity calls it the “transaction queue.” However, they all refer to the same thing.
So is there a single mempool? Or multiple mempools? There are an equal number of mempools as there are nodes. This is because different nodes receive transactions at different times. This results in some nodes storing more information than others at a given time. Another factor is that anyone can run a node and select the hardware they wish to use, resulting in nodes having different capabilities and capacities based on the hardware chosen to store the unconfirmed transactions. As a result, each node has its variation of pending transactions. This is why various mempool sizes and transaction counts are found at different sources.
How Does A Mempool Work?
Whenever a transaction is broadcast, it is sent from a node to other nodes or peers. The nodes will then validate or reject these transactions based on specific parameters such as the correct signature, whether the coins belong to the spender, and whether the output does not exceed the input. If everything is in order, the nodes will pass the information on to the other nodes on the network, repeating the process. Once the nodes have verified the transaction, it is added to the mempool, where it will wait until a miner picks it up.
Mempools – Things To Note
It is important to remember that the mempool is not a universal pool shared by all nodes, as many believe it to be. Instead, each pool is configured differently and receives transactions at different times. Some lower-end devices with limited resources dedicate only a small amount of memory to log and keep track of transactions. However, devices that have significantly higher resources can and would dedicate considerably more resources to log transactions.
Another critical point to remember is that miners are primarily motivated by profits. This means transactions that have higher fees attached to them are likely to be removed from the mempool first since miners will validate those before others. Accurately estimating fees is quite tricky, especially when there is limited block space and demand is sky-high. However, mempools can give some idea regarding the prevailing fees.
Users can estimate fees by looking at the current batch of unconfirmed transactions. Remember, as a user, you must not overpay when throughput is low or underpay for time-sensitive transactions when demand is high. This is because a transaction with a lower fee attached could take more time to get confirmed. However, by looking at the spread of fees prevailing at any given point, users can guess prevailing fees and how long it would take for their transactions to be included in a block.
Let’s look at how the mempool functions over the course of a typical transaction.
- Let’s assume a user initiates a transaction from a wallet to send funds to another wallet or smart contract.
- The user signs the transaction in question with their wallet.
- Once signed, the wallet sends the transaction to a gateway node to get onto the blockchain network (Ethereum, Bitcoin).
- The node will then verify the transaction and add it to the mempool.
- Once added to the mempool, the transaction is broadcast to all other nodes on the network.
- Other nodes receive the broadcast, validate it, and add it to their respective mempools. These nodes also broadcast the transaction, essentially replicating the transaction across the network.
- From the mempool, the transaction is picked up by miners, who add it to a block on the chain.
- This new block is then broadcast on the network.
- Nodes that receive the new block see the transaction included and remove it from the mempool.
How Does A Mempool Impact Transaction Fees?
The size of the mempool has a direct influence on transaction speeds on Bitcoin or any other blockchain. Miners always prioritize transactions that have higher transaction fees attached. This is because they receive a percentage of the fee as a reward for adding the transaction to the blockchain. Therefore, when the mempool holds a large number of transactions, there is increased competition among users to get their transactions confirmed first. This leads to higher transaction fees and higher confirmation times.
When a mempool is relatively uncongested, transaction fees are far lower, and confirmation times are much faster. However, such a situation is rare and only occurs during periods of low network activity.
What Is The Purpose Of A Mempool?
As we have already mentioned, transactions need to be stored before a miner can confirm them. Transactions with a lower fee tend to spend more time in the mempool than those with a higher fee. Such transactions are often overwritten with a “replacement transaction.” Some use cases of a mempool are as follows.
- Transaction Ordering: The mempool helps enable several vital tasks, such as transaction ordering, block construction, and fee prioritization.
- Store Transactions: Transactions are stored before being confirmed and added to the block. Some transactions with a lower fee are in the mempool for an extended time. Replacement transactions typically overwrite these transactions.
- Getting Pending Transactions: One of the primary use of a mempool is to get pending transactions. There are several reasons to do that. It could help to obtain trading prices on decentralized exchanges such as Balancer, Uniswap, and others. It could also help analyze gas prices and adjust transaction prices accordingly, and analyze and simulate pending transactions and help reduce rejection rates.
Mempools play a crucial role in the functioning and overall health of the blockchain. Thanks to the mempool, nodes can validate transactions, and miners can prioritize pending transactions according to the gas fee attached. Developers can also use the data from the mempool to reduce costs and problems in their smart contracts. Overall, the mempool is a critical component, enabling the efficient validation and propagation of transactions.
Disclaimer: The content of this article is strictly for information purposes only. All of the opinions expressed in this article are not connected to CoinSmart and are not intended to provide you with investment advice. It is important that you do your personal research and/or consult an investment advisor to determine what is right for you.