The dynamics of a cryptocurrency transaction can be a little tricky to understand, as they do not work in the same way as a traditional digital transaction. A number of elements play into any cryptocurrency transaction, including a mempool. But what is a mempool, and what role does it play in your crypto transactions?

How Does a Crypto Transaction Work?

gold bitcoin on hundred dollar bill

To understand the position mempools hold in crypto transactions, let's run through a quick overview of the whole process. On a blockchain, a transaction is conducted and then verified by miners or validators so that the network remains secure.

An important thing to note here is that not all cryptocurrency transactions work in the exact same way because all blockchains differ from each other. For example, one might use the proof of stake algorithm, while another uses proof of work. One may require multiple confirmations, while others require less.

Take Bitcoin, for example. This blockchain requires a minimum of six confirmations per transaction, and a transaction can take a while to finalize due to high user demand. Ethereum, on the other hand, requires a minimum of seven confirmations.

Additionally, every blockchain has a different number of nodes, which affects the number of mempools present. You may find that some refer to mempools as "the mempool." While this is okay when referring to a specific mempool, it's important to remember that there isn't one huge mempool spread across an entire blockchain. Rather, each node has its own mempool. So, the more nodes a network has, the more mempools there will be.

But in any case, mempools play an important role in cryptocurrency transactions. So, what is their purpose?

What Is a Mempool?

various crypto coin logos in swimming pool

A mempool (a portmanteau of "memory pool") acts as a sort of waiting room for pending cryptocurrency transactions. As previously stated, crypto transactions aren't conducted and finalized simultaneously. Instead, they must be verified by a blockchain's network of nodes to be processed. This can take time, so a pending transaction needs somewhere to go while it awaits verification. This "somewhere" is the mempool.

All transactions on a blockchain must enter the mempool for confirmation. Within the mempool, a node can store information on unconfirmed transactions. Depending on the hardware used to run the node, the size of its mempool can differ. High-end hardware can often store larger quantities of data, while more rudimentary hardware has lower mempool storage capacity.

When a network has high transactional demand, mempools become clogged, giving way to longer transaction times, as we often see on blockchains with limited scalability, such as Bitcoin. Networks with consistently backed-up mempools can also have higher fees in general.

When a given mempool hits its storage capacity, a miner or validator will begin prioritizing the transactions with the highest fees, as this is where their financial incentive lies. Therefore, if you choose the lowest possible fee for your cryptocurrency transaction, chances are that you'll end up waiting longer for it to be verified.

Some traders on the Bitcoin blockchain choose to use transaction accelerators to hopefully lower the time their transaction is waiting in the mempool (though this isn't a guaranteed remedy). In this scenario, an individual will either rebroadcast their transaction to remind miners that it is still pending or pay a fee to prioritize their transaction.

As soon as a transaction is confirmed, it leaves the mempool and is replaced with another pending transaction. Transactions that don't meet the minimum fee will be immediately removed from the mempool, and will not be processed.

But mempools haven't gone without criticism. Some believe that the financial element associated with mempools creates an unfair advantage for wealthier users. This is also seen in the mining industry, wherein those who have the means to invest in pricier hardware often stand a greater chance of mining a chance and reaping the reward.

Mempools Are Crucial in the Verification of Crypto Transactions

Within a crypto blockchain network, mempools are invaluable. Without these databases, nodes would be unable to view pending transactions and better organize the mining or validation process. Though mempools aren't without their issues, they form the backbone of the crypto transaction model.