Bitcoin is a cryptocurrency network that allows users to send and receive electronic payments anywhere in the world. there are no physical bitcoins, nor are there accounts in which bitcoins are held. Instead, bitcoin acts as a form of electronic cash, and users can conduct peer-to-peer (p2p) transactions using the bitcoin blockchain, which acts as a kind of electronic ledger. the blockchain is constantly updated by nodes, which share up-to-date balances and data across the network. however, before transactions can be added to the blockchain, they must go to the mempool.
how does a bitcoin transaction work?
Before we get to the mempool, let’s understand how a bitcoin transaction works. all bitcoin transactions are simply pending transactions and only exist in the mempool before it is confirmed. Every time a user initiates a bitcoin transaction, it is cryptographically signed and sent to the bitcoin network waiting for a miner to verify the transaction and add it to the blockchain. each verified transaction is publicly available and accessible on the public ledger as a means of transparently recording and distributing each bitcoin transaction to the ledger without being tampered with.
Reading: Bitcoin mempool unconfirmed transactions
Blockchain technology makes decentralization possible, but it has its limitations. for example, the bitcoin network processes about 4.6 transactions per second or tps. compare this to visanet, which processes 1,700 tps. While some adaptations are possible to improve the scalability of blockchain technology, the system is still comparatively slow, which has led to high fees and occasional delays, particularly during periods of high transaction volume.
The blockchain was originally designed to allow bitcoin to operate without banks, government oversight, regulatory agencies, or other central authority. Although bitcoin does not need external authorities to operate, it must still be able to verify transactions, which it does through cryptographic keys.
Bitcoin’s public key cryptography acts as identification for users, allowing them to access their wallets or accounts, and primarily to ensure the integrity of transactions. each user has a private key for her own use and a public key that is visible to everyone in the system. Together, these keys act as a digital signature to authenticate transactions.
When two users agree on a specific transaction, the next step is authorization. each transaction must be authorized before it can be added to the blockchain. this is done by consensus, which means that all decentralized parties, such as network computers or nodes, must objectively agree that the transaction is authorized and valid. Node owners (miners) are incentivized to verify an unconfirmed transaction through proof-of-work consensus, or pow, which requires them to solve cryptographic problems or complex math puzzles.
Once this issue is resolved, the transaction is verified and can be added to the block. when the bitcoin block is full, it is added to the block chain called completion and the next block is opened.
what is a bitcoin mempool?
the mempool, or memory group, is a virtual waiting room where it collects a valid pending transaction until a miner processes them to add them to the next block. each node maintains its own mempool and each node has its own storage capacity for unconfirmed transactions. when a transaction is confirmed and included in a block, it is removed from the mempool.
nodes share mempool data by transmitting signed transactions to each other until it reaches the entire network. when an overall mempool reaches its maximum capacity during periods of high transaction volume, the node prioritizes transactions judging by offer transaction fees that are above threshold fees. any transactions that are less than the minimum fees will be removed from the mempool and only newer transactions with fees that reach the minimum will be added back to the mempool. In other words, transactions with higher fees have priority to be processed and deleted from the mempool and to be added to the block.
the correlation between the bitcoin mempool and transaction fees
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If we think of the mempool as a waiting room, when it is congested, there will be a large volume of transactions waiting to be settled. Transactions generally move in and out of the mempool seamlessly as they are verified and added to the block, but occasionally the mempool can become congested.
periods of congestion can usually be attributed to high transaction volume or abruptly declining trade hash. during these periods, the mempool becomes congested and delays can occur, resulting in increased rates.
The term “hash trading” refers to the difficulty of mining blockchains. there may not be enough miners to handle the complexity or congestion of the blockchain at the time. therefore, some transactions need to wait longer to be confirmed.
Each bitcoin transaction remains in the mempool until it is ready to be confirmed, but there is no single general mempool. each node has its associated mempool, and by default the mempool typically does not exceed 300mb.
When the mempool is congested, users have the option to pay higher fees, which can bring their transactions to the front of the queue for faster confirmation. on the other hand, transactions with lower fees will remain in the mempool, where they will remain unconfirmed until the congestion is removed. Similarly, during times of minimal congestion when transaction volume is low, fees are correspondingly lower. once a transaction is selected and added to a confirmed block, it is removed from the mempool.
You can check the status of your btc transaction here.
understand mempool size and transaction count
The mempool size in bytes is a metric to estimate how long the congestion will last, while the mempool transaction count graph gives a clear view of the influx of transactions that are causing the congestion. The larger the mempool size, the more congested the network will generally be, resulting in a longer average confirmation time and higher priority fees being required for transactions to be added to the block. however, if the size of the mempool drops, it means that a node received a new valid block and ended up removing the pending transactions that are contained in the block from the mempool.
Usually the size of the mempool can fluctuate as it depends on the number of transactions being transmitted. Since each node also has its own interpretation of pending transactions based on its capabilities to store unconfirmed transactions, this also explains why the size of the mempool varies.
On the contrary, if the mempool transaction count increases, it means the total number of unconfirmed transactions in the mempool is surging. Thus, a higher fee is incurred. For example, on October 4, 2021, Bitcoin’s mempool contained 4.25k of pending transactions, and the average transaction fee was $2.45. Compare this with October 25, 2021, when the mempool size reached a high of 6.6k transactions, with an average transaction fee of $3.09.
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You can check the current fee rates here.
what to do if there is a transaction overload?
During times of peak traffic, the bitcoin network can end up with a significant backlog of transactions, increasing wait times and increasing transaction fees. when demand exceeds supply, miners have considerable leeway in choosing which transactions to process first. In scenarios like these, even those who have paid generous rates can expect more than expected.
Several things contribute to hoarding, including the fact that the bitcoin blockchain is not easily scalable, which means it also easily becomes overloaded. when it comes to periods of high congestion, you have the option to simply wait, or switch to the lightning network to complete smaller transactions off the main chain, or pay a higher transaction fee.
once the transaction has been submitted, you still have a few options that can speed it up. If your transaction is stuck in the queue, you can move forward online with the Fee Override option or the RBF option, which allows you to resubmit your transaction with a higher fee. however, not all wallets support this option. If yours doesn’t, you’ll need to consider alternatives, such as “child pays parent” or CPFP. With CPFP, miners choose transactions that include the highest combined fees. You can also use a transaction accelerator, which allows you to send transactions of at least 0.1 mbtc per kilobyte to the viabtc mining pool for priority confirmation.
Finally, you can use the lightning network, which is a layer 2 solution. The lightning network allows you to open a new channel, complete as many transactions as you like outside of the conventional bitcoin network chain, and then close the payment channel when transactions are verified. By using the lightning network, you can essentially skip the congested queue and your rates can be significantly lower as well.
If neither lightning network nor any other solution is an option, rest assured that even with stuck transactions, your bitcoin will not be lost. it will remain in your wallet until the transaction is confirmed.
then what if the mempool didn’t exist?
every transaction must go through the mempool before it can be added to the blockchain. During times of high traffic and congestion, the mempool collects and stores transactions until miners can add them to the block.
mempool also makes it possible for nodes to access the mempools of other nodes, giving them more details about specific transactions before commit. While most users want to spend as little time as possible in the mempool, that’s not always possible, especially when more transactions arrive than can be settled quickly. when a block is mined, all transactions it contains will be deleted from the mempool, reducing the size of the mempool accordingly.
Without the mempool, nodes would not be able to see incoming transactions and would have no idea how congested the blockchain network is. it would be impossible to understand or identify the source of traffic jams, high fares and other problems associated with congestion.
the end result
waiting for a transaction to settle can be frustrating. While you might be tempted to blame the mempool, it is a crucial feature of the bitcoin network because it is used to add and hold transactions until they are ready to be added to the blockchain. Understanding how the mempool works can help you use it to your advantage to ensure your transactions are processed on time and lessen your frustration if they don’t.
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