Transaction Propagation

Nodes use a gossip protocol (or flooding algorithm) to broadcast transactions. When a node receives a valid transaction, it immediately forwards it to a subset of its connected peers, who then do the same. This creates an efficient, epidemic-style spread across the network.

• Key property: Rapid, redundant dissemination increases censorship resistance.
• Example: Bitcoin uses an inventory-based system where nodes advertise new transactions via INV messages.

The mempool is a node's temporary holding area for unconfirmed transactions that have been validated and propagated but not yet included in a block. It acts as a public waiting room where transactions compete for block space based on fee priority.

• Function: Miners/validators select transactions from their mempool to build the next block.
• Network State: Mempool size and composition are dynamic indicators of network congestion and fee pressure.

Before relaying a transaction, each node performs initial validation against the network's consensus rules. This prevents the propagation of invalid data (spam, double-spends) and is a critical line of defense.

• Checks include: Digital signature verification, input/output validity, syntax correctness, and fee sufficiency.
• Consequence: A transaction failing any check is rejected and not forwarded, protecting network resources.

Propagation latency is the time for a transaction to reach the majority of the network. High latency can lead to chain forks and orphaned transactions, where a transaction is excluded because a conflicting one was mined first.

• Impact on Mining: Miners with slower propagation are at a disadvantage, leading to centralization pressure.
• Optimizations: Networks use compact block relay (e.g., Bitcoin's) or direct peer connections to reduce latency.

Transaction propagation is intrinsically linked to the fee market. Users attach a fee to incentivize nodes to propagate and miners to include their transaction. During high demand, transactions with higher fees are prioritized for propagation and inclusion.

• Fee Estimation: Wallets analyze the propagated mempool to suggest optimal fees.
• Propagation Incentive: Nodes may prioritize relaying higher-fee transactions to serve miners efficiently.

The network topology—how nodes are connected—directly affects propagation efficiency and security. A poorly connected node is vulnerable to an eclipse attack, where malicious peers isolate it from the honest network, controlling its view of propagated transactions.

• Defense: Nodes use outbound connection strategies and peer discovery protocols (like DNS seeds) to maintain diverse, resilient connections.

The foundational peer-to-peer (P2P) communication method for broadcasting transactions. Nodes relay transactions to a subset of their peers, who then relay to their peers, creating an efficient epidemic-style spread.

• Key Mechanism: Uses techniques like flooding or randomized gossip to ensure eventual network-wide dissemination.
• Purpose: Maximizes liveness and censorship resistance by preventing any single node from controlling transaction flow.
• Example: Bitcoin and Ethereum's Devp2p stack use variants of gossip protocols for initial broadcast.

The mempool is a node's holding area for unconfirmed transactions. Propagation logic directly impacts mempool composition and transaction selection for block inclusion.

• Function: Nodes validate, prioritize (often by gas price or fee rate), and store pending transactions before propagating them.
• Network Effect: Differences in propagation speed and policies create mempool asymmetry, where nodes may see different sets of pending transactions.
• Importance: Critical for fee estimation services and front-running analysis.

Advanced protocols designed to reduce the bandwidth and latency of transaction propagation.

• Graphene: Uses Invertible Bloom Lookup Tables (IBLTs) and a Bloom filter to compactly represent a set of transactions, drastically reducing block and transaction announcement sizes.
• Erlay: A Bitcoin proposal that replaces flooding with a reconciliation-based protocol, using set reconciliation to minimize bandwidth by ~40% while maintaining security.
• Goal: Improve network scalability and reduce orphaned blocks.

A bandwidth-saving technique for block propagation that assumes most transactions are already in a node's memool.

• Process: When propagating a new block, a node sends only a short block header and a list of transaction IDs (txids). The receiving node reconstructs the block using transactions from its local mempool.
• Efficiency: For blocks where >90% of transactions are already known, this reduces data transfer by an order of magnitude.
• Standard: Widely implemented in Bitcoin (via BIP 152) and other chains to improve block propagation speed.

Networks designed for high transactions per second (TPS) implement unique propagation mechanisms to handle volume.

• Solana: Uses a Turbine protocol, which breaks data into small packets and disperses them along a stake-weighted path for rapid reconstruction by validators.
• Avalanche: Employs a sub-sampled voting and gossip mechanism within its Snowman++ consensus, where repeated random polling of peers quickly converges on transaction validity.
• Focus: These systems prioritize low-latency propagation to sustain high throughput.

The public visibility of pending transactions in the mempool allows sophisticated actors (searchers, bots) to identify profitable opportunities and submit their own transactions with higher fees to be executed first. This is a primary source of Maximal Extractable Value (MEV). Common strategies include:

• Sandwich Attacks: Placing orders before and after a victim's large DEX trade to profit from the price impact.
• Arbitrage: Immediately capitalizing on price discrepancies across venues revealed by a pending transaction.
• Liquidation: Triggering a loan liquidation after detecting a transaction that will make it profitable.

Powerful network participants, such as block builders in PBS (Proposer-Builder Separation) systems or large mining pools, can selectively exclude transactions from blocks. This can be used for:

• Regulatory Compliance: Blocking transactions from sanctioned addresses.
• MEV Extraction: Censoring transactions that would reduce the profitability of a block (e.g., arbitrage that lowers builder revenue).
• Network Attacks: Denying service to specific users or applications. Encrypted mempools and fair ordering protocols are proposed mitigations.

A consensus-layer attack where a miner or validator intentionally withholds a newly mined block to perform a chain reorg (reorganization). They use the extra time to mine a competing chain that includes or excludes specific transactions for profit, effectively rewriting recent history. This undermines transaction finality and is mitigated by mechanisms like Ethereum's proposer boosting and attestation deadlines, which penalize late block proposals.

To combat frontrunning, projects are developing privacy-preserving propagation methods. Key solutions include:

• Encrypted Mempools: Transactions are encrypted with the builder's public key and only decrypted after inclusion in a block (e.g., Shutter Network).
• Private Transaction Pools: Direct, private submission channels to trusted builders or validators (e.g., Flashbots Protect, Titan).
• Commit-Reveal Schemes: A user submits a commitment hash first, then reveals the transaction details later, hiding intent until it's too late to frontrun.

The underlying gossip protocol can be exploited. Common attacks include:

• Eclipse Attacks: Isolating a node by monopolizing its peer connections, controlling what transactions it sees.
• Sybil Attacks: Flooding the network with malicious nodes to spy on or delay transaction propagation.
• Bandwidth Exhaustion: Spamming the network with junk data to slow down legitimate transaction relay, creating opportunities for MEV. Node implementations harden against these with peer scoring, randomness in peer selection, and rate limiting.

Attackers can manipulate the perceived network state to extract value or deny service.

• Fee Inflation: Spamming the network with high-fee, low-value transactions to artificially inflate the base fee or priority fee market, forcing users to overpay.
• DDoS via Mempool: Filling the mempool with transactions to prevent legitimate ones from being propagated or included.
• Bait Transactions: Creating seemingly profitable transactions to lure bots, then trapping them in failed or unprofitable executions (MEV burn).

The gossip protocol is the decentralized communication mechanism used for transaction and block propagation in blockchain networks. Nodes randomly select peers to forward new data, creating an epidemic-style spread.

• Key Properties: Fault-tolerant, scalable, and resistant to single points of failure.
• Example: Bitcoin and Ethereum use variants of this protocol, where nodes announce new transactions via INV (inventory) or NEW_POOLED_TRANSACTION_HASH messages.

A mempool is a node's temporary holding area for unconfirmed transactions that have been propagated but not yet included in a block. It is a critical component of the propagation layer.

• Function: Acts as a buffer and a source for block builders (miners or validators) to select transactions.
• Dynamic State: Mempool contents vary between nodes due to propagation delays and local policy filters, influencing transaction fee markets.

Network latency is the delay in transmitting data between nodes, directly impacting the speed and efficiency of transaction propagation. Lower latency reduces the chance of forks and front-running.

• Measurement: Typically measured in milliseconds (ms). High latency can lead to stale transactions and network partitions.
• Mitigation: Node operators often use dedicated infrastructure and optimized peer connections to minimize latency.

A transaction fee is an incentive paid by the sender to compensate network validators. During propagation, fees influence transaction priority and the likelihood of inclusion in the next block.

• Propagation Incentive: Nodes are incentivized to propagate transactions with higher fees, as they are more valuable to include.
• Fee Market: The dynamic relationship between supply (block space) and demand (user transactions) is established during the propagation phase.

An orphaned or stale transaction is one that fails to be confirmed, often due to propagation failures, invalidated nonces, or being outbid by higher-fee transactions.

• Causes: Can result from propagation delays, double-spend attempts, or mempool eviction policies.
• User Impact: Transactions may need to be rebroadcast with a higher fee to eventually propagate successfully and be mined.

Flood routing is a simple propagation strategy where a node forwards a received transaction to all its connected peers (except the sender). It ensures rapid, redundant dissemination but consumes significant bandwidth.

• Contrast with Gossip: While gossip is selective, flood routing is exhaustive. Early blockchain networks used simpler flood models.
• Optimization: Modern networks implement controlled flooding with checks to prevent spam and denial-of-service attacks.