What is the Mempool?

Here at PARSIQ, one of our innovations that we’re working on is adding Mempool monitoring for blockchains. But what is the Mempool, how does it work, and why should you care?

Mempool – blockchain’s holding area

At the most basic level, the Mempool – which is short for Memory Pool – is a holding area for pending transactions which are waiting to be added to the blockchain by the miners.

When a transaction is transmitted to a blockchain network – for instance the Bitcoin network – it first must get verified by all of the nodes which run the network. Once it passes verification, it sits inside a node’s “Unconfirmed Transactions” database, otherwise known as the Mempool. The transaction waits there until a miner picks it up and includes it in the next block. For the privilege of being added to the next block, a transaction fee is paid by the sender.

As you can imagine, the Mempool can get pretty full during busy times on the network, so if this happens, the nodes will start prioritising transactions by creating thresholds for minimum transaction fees. If the transaction fees set by the sender are too low, they could be wiped from the Mempool and the transaction may never be confirmed.

Another effect of a busy network is that transactions might take longer to be added to a block as there’s limited space on each new block. For instance, Bitcoin can add approximately 3,500 transactions to each new block, and a new block is created approximately every 10 minutes.

Why should we care about the Mempool?

There are a few reasons that the Mempool is interesting, here’s our top three:

1. Blockchain’s early warning system

If something significant is happening, such as a large amount of crypto going to an exchange, the Mempool is where you’ll see it first. Early warnings – especially in blockchains with shorter transactions times such as Ethereum – can allow you to use the knowledge for market intelligence, for instance to predict price movements.

2. Spot (and even reverse) hacks before they happen

There have been numerous examples of cryptocurrency exchange’s hot wallets being compromised, and significant sums of cryptocurrency being lost. By monitoring the Mempool for unusual and suspicious transactions, the Mempool could be used to spot a hack before the transaction is irreversibly confirmed. Potentially it could allow the transaction to be reversed – for example by using a higher fee to undo the transaction, or by other means (e.g. working with the miners).

3. Predict congestion

Blocks can fill up fast when the network is busy – for instance during fluctuations in price of cryptocurrencies. By monitoring the Mempool, you can predict this build-up of transactions and potentially take advantage of market volatility.

Conclusion

The Mempool is often considered to be the blockchain’s backlog, it’s also where any scaling problems manifest itself – if the network can’t keep up, the Mempool will keep queuing transactions. This the reason Bitcoin forked into Bitcoin and Bitcoin Cash in August 2017 – Bitcoin Cash increased the blocksize in order to prevent potential backlogs and delays in the network.
Mempool monitoring, as we’ve seen, has potential uses in a number of areas of cryptocurrencies, from trading to security. That’s why we’re actively developing a realtime Mempool analysis feature for the PARSIQ platform.

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *