What: Pending Bitcoin transactions are independently held and transmitted in a full node’s memory pool (i.e. mempool) until a miner adds it to a block.
Why: Miners collect transactions from the mempool (aka block) then try to solve an energy-intensive math problem to earn the block reward. The miner who first solves the math problem gets to add his block to the blockchain. This is the first confirmation of that block.
Example: The goal is to have all transactions include on the blockchain, but one way of getting transactions included faster is to pay a higher fee. By paying a higher fee, the miner has an incentive to include it in the next block -maximizing the amount of money they can earn. Unfortunately this process causes two problems:
- Micro-transactions are not possible, and
- Longer confirmation times if not paying the higher fee