The past 12 months have seen major changes across the whole bitcoin mining industry, including hashrate, profitability and pending transactions. Although price, hashrate, and profitability have all surged back several months after China’s mining ban, Bitcoin mempools – holding depots that store unconfirmed transactions until miners add them to new blocks – are regularly empty.
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In short, this means fewer people are transacting on Bitcoin compared to earlier this year when mempools were usually quite full. This article explores why Bitcoin users might be transacting less and why mempools are empty.
Look at the mempool visualized below, and notice the huge difference between the first and second halves of the year. While mempools were regularly full and fee revenue was much higher at the start of 2021, now pending transactions are much fewer and they’re cleared by miners at a much faster rate.
The simplest explanation for empty mempools is that people are just transacting less, continuing a trend from June. The chart below shows that even though bitcoin’s price has returned to its highs from earlier this year, transaction levels on the Bitcoin network are down. At the end of April, the number of transactions were at 300k, and now the transactions are only 275k.. Not a significant drop but one that gave a chance for miners to catch up on tx in the mempool.
Why is the mempool empty?
Here’s a short overview of a few possible reasons why.
- Layer 2 Technologies: Bitcoin mempools only store pending transactions for the base layer of Bitcoin’s blockchain. As more users start adopting scaling protocols atop Bitcoin (e.g., Lightning Network) , small transactions move to those protocols and out of Bitcoin mempools. Lightning Network use has been steadily increasing, but it’s unlikely to be the sole or even a primary catalyst for why mempools are currently so empty. It just means that there is less transactions on the base chain. There is some evidence of this showing a higher avg byte transaction on the base chain.
- A portion of the transactions are becoming more efficient: Bitcoin has seen a jump in bech32 address transactions which can be up to 40% more efficient in fees. This could have somewhat of an impact on the mempool if not a large on considering almost 90% of all transactions sent are using Bech32 or segwit
- Less retail means less transactions in general: Retail comes and goes and there are usually more people transacting on the Bitcoin network when the price sees higher highs. It's possible we shook out a lot of speculators and retail investors in this most recent Downturn.
- People are willing to pay higher fees during a bull market: Below shows the median fee during Bitcoin’s price history. In the highlighted price rises, there was a large increase in the average fee per transaction.
Overall there are still a good number of transactions moving through the network. But the average fee rate is lower. These are signs of a healthy network that can efficiently move value from one entity to another.