December 4, 2021

Why is Bitcoin's mempool still so empty?

In the first half of the year mempool was full, now it is mostly empty. Why?

In the last 12 months, there have been major changes throughoutthe bitcoin mining industry, which, of course, affected network hashrate, mining profitability and transaction queues. But if price, hashrate, and mining profitability have fully recovered a few months after the Chinese ban, Bitcoin's mempools - pending transaction lists from where miners select them to add to blocks - are still largely empty.

In short, it seems to mean simply,that fewer people are transacting with bitcoins compared to the beginning of the year, when mempools were predominantly full. Here we will try to understand why this is happening.

Take a look at the visualization of the fullness of mempools below and notice the huge contrast between the first and second half of the year.

Bitcoin Mempool Occupancy Levels Over the Last Year

The simplest explanation for empty mempools isis that people are simply making fewer transactions, continuing a trend that started back in June. The chart below shows that although the price of BTC has returned to the levels of the beginning of the year, the number of transactions on the network is now significantly lower. At the end of April, the number of transactions was 300 thousand, and now only 275 thousand. It seems to be not such a big drop, but enough for miners to almost completely figure out the transaction queue in the mempool, and on an ongoing basis.

Average number of transactions over 7 days

Why is the mempool empty?

Here are some possible reasons.

  • Second level technologies (L2):Bitcoin mempools store a transaction queue only for the main Bitcoin blockchain. As people begin to actively use scaling solutions (for example, the Lightning Network), small protocols migrate to these protocols and no longer appear in Bitcoin's mempools. The Lightning Network is growing steadily, but it can hardly be the only or even the main catalyst for such devastation of mempools. It just means fewer transactions on the main blockchain. And this is also confirmed by a slight increase in the average transaction size on the main blockchain.
  • Some transactions become more efficient:Bitcoin has seen a strong increase in the number of transactions using bech32 addresses, which can provide up to 40% savings on fees. This can have a noticeable impact on the mempool given that nearly 90% of all transactions sent were using bech32 or segwit.
  • Fewer retail users overallimplies fewer transactions: small players come and go, and usually the number of transactions increases dramatically when the price sets new highs. It is possible that many retail investors and speculators were shaken out of the market in the summer correction.
  • People are willing to pay higher commissions forBull Markets: The chart below shows the average transaction fee over the entire history of bitcoin price. In the highlighted areas of growth in the BTC price, one can also observe a significant increase in the average transaction fee.

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Overall, the network still handles quitea significant number of transactions. But the average commission rate for them today is much lower. And this is a sign of a healthy network capable of efficiently transferring capital between users.

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