Why mempools are the network’s most brutal information space

To the average Bitcoin participant, mempools are simply a list of pending transactions to check in on when they have a transaction to broadc...ast. But they are so much more.

Mempools are a bustling, brutal marketplace of pure data. They reflect all the knowledge of the pressures, needs, time preference and means of every single participant demanding transaction settlement on the Bitcoin network. And they distill all this knowledge into a real-time price signal anyone can interpret and interact with.

Mempools are the centerpiece of the entire Bitcoin economy. And they are totally underrated.

Note: mempools are tightly integrated with other components of the Bitcoin network, particularly mining and transaction verification, that are out of scope for this article to explore. We will uncover what we need to make everything clear, but this article is more focused on a mental model for understanding mempools than technical exactitude.

Thousands of Mempools

At its simplest abstraction, “the mempool”, short for Memory Pool, can be thought of as a database of pending Bitcoin transactions. These are transactions that have been broadcast by users but haven’t yet been included in a block. Because they have not been mined into a block, such transactions are considered “unconfirmed”.

We refer to “the mempool” here in quotes because this term is a colloquialism that neglects the true nature of how the Bitcoin network functions, and it’s worth correcting. While “the mempool” would imply that there is a single master list of unconfirmed transactions, there is no such certainty. Rather, every participant running a full node will have a slightly different version.

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An increasing number of Canadians are buying bitcoin through various trading platform, exchanging dollars for bitcoin which they wish to keep. Following some high-profile incidents involving such trading platfo...rms, regulators have begun to worry about how the funds of retail clients are kept safe. In CSA Staff Notice 21-327, Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets, CSA Staff outlined some of their views.

This guidance highlighted two very common arrangements between trading platforms and their end customers:

1. A customer exchanges dollars for bitcoin. Following this, the customer keeps their bitcoin with the trading platform. They may elect to withdraw it later.
2. A customer exchanges dollars for bitcoin. Following this, the bitcoin is sent to the purchaser.

In the guidance, CSA Staff appear to recommend that all trading platforms transform themselves into platforms that look like (2) above. That is, the customer should find themselves holding the bitcoin following their purchase. It should not be the case that bitcoin continues to be held by the platforms.

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