Key takeaways
- The Bitcoin transaction mempool is a temporary storage area for unconfirmed transactions that are waiting for a miner to add them to a new block.
- Every Bitcoin node runs a mempool and works to check transactions for correctness, sufficient funds and double-spending to ensure efficient mempool Bitcoin transaction processing.
- Bitcoin mempool transaction fees play a key part in prioritizing what transactions miners choose to confirm in the next block.
- The Bitcoin mempool helps to create a more efficient, scalable and secure blockchain with its approach to mempool Bitcoin pending transactions and reducing Bitcoin mempool congestion and spam attacks.
Are you nervous about how long it’s taking for your Bitcoin (BTC) transaction to go through? Or wondering why transaction fees change so often? It’s all down to the Bitcoin mempool. It might sound technical, but the concept is actually quite simple to explain.
Below, you’ll find an easy-to-understand explanation of the Bitcoin mempool, how it works, and why it’s so important to the network. Once you learn this, it’ll help you transact using Bitcoin more quickly, efficiently and cheaply.
Bitcoin mempool, explained
Bitcoin mempool is short for “memory pool.” Every Bitcoin node has its own mempool, so there are actually multiple mempools, not just one Bitcoin mempool.
So, what is a mempool exactly?
The mempool acts as a temporary storage space in the network where transaction data is held by nodes until it’s included in a block. This ensures transactions are queued and ready to be processed by miners, implying that it’s the transaction data — not the nodes — that will ultimately be added to the next block.
It’s a holding area and a Bitcoin network transaction queue for unconfirmed transactions that have been broadcast to the network. Once you sign and send a transaction, it is sent to wait in the node mempools until it is picked up and included in a block by a miner.
It’s a bit like the waiting room at the doctor’s office. You let the receptionist know you’re ready to see the doctor, then take a seat in the waiting area until it’s your turn in the queue.
How the Bitcoin mempool works: An overview
When you sign a Bitcoin transaction and broadcast it to the network, it is sent from node to node across the network.
Each node on the network adds that transaction to its own mempool. The nodes then check to make sure it is a valid transaction that follows the consensus rules — for example, that the Bitcoin hasn’t already been spent. If a transaction fails to pass the consensus checks, it is rejected by the network.
Miners also run their own full nodes to see what transactions are available for them to choose and include in a new block. Miners then select transactions from the mempool to add to the next block.
Generally, this is done based on the highest transaction fees offered. When a miner includes a transaction in a new block, it is then considered confirmed. At this point, the transaction is complete, and funds will arrive in the receiver’s Bitcoin wallet.
When a transaction is included in a new block, it is removed from every node’s mempool.
Understanding Bitcoin mempool and transaction processing
As mentioned earlier, Bitcoin nodes check and verify transactions to ensure they are valid.
Validation checks include:
- Correct signatures: Nodes check that the transaction is signed correctly using the correct private keys to the public key inputs.
- Sufficient funds: Ensures that the sum of the input is equal to the sum of the output, including any transaction fees.
- Double-spending: The unspent transaction output (UTXO) is verified to ensure the same transaction inputs have not been used in another transaction.
- Transaction structure: Field lengths and serialization formats must adhere to the Bitcoin protocol format.
- Script validation: Nodes run a locking script (ScriptPubKey) and an unlocking script (ScriptSig) to validate that the script follows the standard formats and is not harmful.
- Transaction size: Transaction size must not exceed the maximum size of 1MB or 4MB if SegWit is used.
- Fee calculator: Minimum fees must be met for a transaction to be considered for inclusion in a block using a “fee per byte” rate.
- Timestamp: A transaction’s locktime is reviewed so a future time beyond the current block height cannot be used. This ensures correct number sequencing for block inclusion.
If a broadcasted transaction fails its node validation checks, then it is rejected by the network mempools. This means it can’t be confirmed, completed and added to the blockchain.
When a transaction passes these checks, it waits in the mempool. Transactions are not instantly processed and confirmed at this point. They must still wait for a miner to select and include them in an upcoming block. Transactions with low fee settings can be waiting a while or even be purged and canceled by nodes in some instances.
Did you know? The first ever Bitcoin transaction was sent from Satoshi Nakamoto to Hal Finney on Jan. 12, 2009. It contained 10 BTC, which 15 years later would be worth more than half a million dollars.
Why the Bitcoin mempool is important for blockchain
The Bitcoin mempool is vital to the secure operation and health of the blockchain. As a temporary holding area for Bitcoin unconfirmed transactions, it allows the network to remain efficient, scalable and secure through structured transaction flows.
Understanding its importance is useful for both Bitcoin users who want to transact efficiently and developers looking to build Web3 solutions on Bitcoin.
Blockchain efficiency is maintained through transaction management and resource allocations. The mempool works as a “buffer zone” when there are too many transactions for miners to handle, which is a constant requirement.
With over 500,000 transactions a day, this is a constant requirement now. This helps to stop the network from being overwhelmed. Nodes also allocate resources more efficiently.
Bitcoin scalability and mempool are intrinsically linked. The queuing mechanics allow the Bitcoin blockchain to handle a larger number of transactions. Queuing transactions makes them eligible to be included in later blocks, which is crucial to managing periods of high demand.
Not having to process every transaction immediately is key to the network scalability. Dynamic adjustment during periods of congestion also allows the network to scale using prioritization. Higher transaction fees can be set for quicker inclusion.
Furthermore, security is enhanced by mempools. As discussed, transactions are checked and validated before being added to mempools. This means miners have a selection of secure transactions to choose from when creating new blocks.
Propagating transactions through mempools helps maintain a consensus across the network on which transactions should be included in the blockchain.
Did you know? The Lightning Network is a solution designed to reduce Bitcoin network congestion and slow transaction times. It uses micropayment channels among participating nodes to send and receive Bitcoin quickly and cheaply.
How the Bitcoin mempool impacts transaction fees
When sending a Bitcoin transaction, you can select your preferred transaction fee. Most Bitcoin wallets offer suggestions for low-, medium- and high-priority fee settings, or you can input your own custom choice.
Memopools have a direct impact on transaction fees, usually based on how busy the network has become. It’s simple supply and demand. The more transactions are broadcast, the higher transaction fees will climb, and vice versa. This is a simple prioritization mechanism.
When miners select a transaction in the mempool to include in a new block, they prioritize the transactions with the highest transaction fee attached. Miners don’t just earn from block mining rewards but also the transaction fees. So, it’s in their interest to pick the highest fees for their own profitability. It’s great for miners but can become a problem for users.
The Bitcoin mempool congestion problem
The quicker you want your transaction to be processed, the higher the fee you need to pay. This presents problems during periods of network congestion, as fees can skyrocket — even to $50 or more for a single transaction.
The result?
It becomes economically unsustainable to use BTC for small transactions. Those who transact in Bitcoin but don’t want to pay high fees end up waiting a long time for confirmation. Or the transaction can be pruned from the mempool when storage limits are reached. This helps to reduce the Bitcoin transaction backlog.
How the Bitcoin mempool manages unconfirmed transactions
On average, a mempool is 300 MB in storage size. When the total size of transactions in a mempool exceeds the storage limit, broadcast transactions start to get pruned.
Transactions that are unconfirmed for a long period of time can be dropped from the mempool. Once again, priority is allocated using transaction fees. The lowest fee transaction gets removed from the mempool.
If you can’t afford or refuse to meet the minimum transaction fee to be included in a mempool, your transaction will fail, and funds will be returned to your wallet.
How does SegWit enhance mempool efficiency?
Segregated Witness was introduced in 2017 to improve Bitcoin’s scalability. Here’s how SegWit helps the mempool:
- Reduced transaction size: By separating witness (signature) data from transaction data, SegWit effectively reduces transaction size. This means more transactions can fit within the same block, reducing congestion in the mempool.
- Lower fees for SegWit transactions: SegWit transactions occupy less block space, leading to generally lower fees. As a result, users can pay less while still having their transactions prioritized, especially when the mempool is congested.
Improved block capacity (virtual block size): SegWit enables a virtual block size of up to 4 MB, which allows for more transactions to be included in each block. This helps to clear transactions out of the mempool faster, especially during high-traffic periods.
Did you know? On April 20, 2024, Bitcoin transaction fees soared to the highest ever level, hitting $128. On that day, miners collectively earned $78 million in fees, another all-time high.
Bitcoin mempool: Key role in processing transactions
Bitcoin mempool is a key piece of infrastructure in the lifecycle of a Bitcoin transaction, from initial broadcast to confirmation. A well-functioning mempool contributes to the health, efficiency and security of a blockchain network.
If you are transacting in Bitcoin, it’s useful to understand how mempool and Bitcoin mining work together. For example, you might be getting nervous about the length of time a transaction is taking to confirm or getting frustrated by high transaction fees.
Now you’ve learned how Bitcoin mempool works; you can even start using mempool explorer tools to see Bitcoin transaction fees that mempool currently requires, along with potential confirmation times.