Thread by @murchandamus

@CryptoStorm3 @ChartsBtc Each transaction offers miners a small amount of bitcoins to incentivize confirmation. Blocks are limited to 4M weight units, so miners cannot include everything that is waiting. Naturally, they choose the transactions that pay the highest fee per weight unit to maximize revenue.

@CryptoStorm3 @ChartsBtc Since a block is limited in size, and the block interval self-regulates to be roughly constant, the throughput of transaction data is limited.
OTOH, the amount of transactions that get submitted to the network is flexible.

@CryptoStorm3 @ChartsBtc Especially, when the price makes big swings, people get excited and want to participate in the market. As a precept in Bitcoin is to be your own bank and control your funds directly, a lot of people do not keep funds on their exchange accounts but in their own wallets.

@CryptoStorm3 @ChartsBtc This means that market moving news and price swings often prompt the creation of more transactions than usual. Once the transaction creation rate exceeds the throughput limit, the queued transactions grow quicker than the transactions get confirmed.

@CryptoStorm3 @ChartsBtc Each node keeps their own view of the queued transactions in the so-called memory pool (or mempool). The website that I provided screenshots of (jochen-hoenicke.de/queue/#0,24h) publishes statistics of the node JoHoe runs.

@CryptoStorm3 @ChartsBtc In the past few days, transaction creation has been exceeding transaction confirmation and the queue had accumulated about 56 blocks worth of transactions. As users have varying urgency to see transactions confirmed, they bid accordingly for inclusion of their transactions.

@CryptoStorm3 @ChartsBtc The colors in the graph represent different feerates. The feerate of a transaction is the ratio of fee per data amount. The higher the feerate, the more money a miner will make by including the transaction in their block.

@CryptoStorm3 @ChartsBtc The blue bands in the bottom represent low-urgency transactions. The users may for example just be consolidating dust or have other reasons to prefer low cost over quick confirmation.

@CryptoStorm3 @ChartsBtc The green bands in the middle consist of transactions that want to get some priority, but are unwilling to pay a premium to get confirmed as quickly as possible. These are probably users aiming to see transactions confirmed in a day or two.

@CryptoStorm3 @ChartsBtc The yellow (and red) bands at the top are users vying for express confirmations. They choose their bids to get confirmations within the next hour. These transactions could for example facilitate business deals or attempt to enter a market as quickly as possible.

@CryptoStorm3 @ChartsBtc While the transaction creation exceeds block capacity, the mempool grows more quickly than it shrinks. New transactions attempt to skip to the front of the line to make yet a higher bid and especially get added to the top. This pushes up the feerates.

@CryptoStorm3 @ChartsBtc Eventually, the transaction creation slows down, and the transaction creation drops below blockspace production. The mempool starts clearing from highest feerate to lowest feerate.

@CryptoStorm3 @ChartsBtc However, during a market frenzy, the demand for blockspace may exceed production for an extended period and bridge such demand slumps. For example in May after the third halving, more than 50 blocks worth of transactions amassed in the 1-2 sat/vB band (the lowest blue)…

@CryptoStorm3 @ChartsBtc … when the transaction queue did not clear for over two weeks.

@CryptoStorm3 @ChartsBtc This is by no means the worst we have seen. In winter 2017, around the time that the Bitcoin price reached its latest all time high, the transaction queue never fully cleared between Oct 26th 2017 and February 22nd 2018.

@CryptoStorm3 @ChartsBtc @threadreaderapp unroll