How Data Feeds Paved The Way for Mempools for Unchain Transactions
What’s the relationship between data feeds in traditional finance and mempools in unchain/off-chain transactions?
Well, before tackling the issue let’s get a couple of definitions out of the way.
What is a market data feed?
Market data is a repository containing information that allows traders to gain visibility into the market climate so trades can be initiated.
Such information includes:
· The price of stocks, options, futures, currencies, commodities
· The state of the commodity/securities market
· The evolution of commodity/securities price over time
· The history of the commodity/securities market performance
A market data feed according to Spiderrock.net is simply the: “…method by which that data is delivered to market participants.”
It’s worth noting that exchanges like the New York Stock Exchange are responsible for generating these raw market data feeds. These feeds are quite voluminous and demand high computing resources and network capacity which individual traders may not have access to.
Thankfully, specialist market data suppliers understand this conundrum and process the complex raw market data and present it in a more structured form as normalized market data feeds that are easier for organizations and private traders to examine.
What is a mempool?
The word mempool is a combination of two words — memory and pool — and is the area or space where cryptocurrency transactions wait before being processed by miners.
It’s like a giant pool in which transactions float until a miner picks one to authenticate, verify, and integrate onto a block that will be added to the blockchain.
The importance of data feeds in the world of investing
It’s very difficult to trade commodities and securities without trustworthy market information. Visibility is key so informed buy or sell decisions can be made.
From the onset of trading, the need for structured reliable information was clear and before long exchanges were generating raw market data feeds which they passed along to trading firms.
The advent of technology heralded a new era, however, as market data feeds took on an electronic nature and gradually became more accessible to both professional and amateur traders.
Frankly, without data feeds, the markets wouldn’t function as they do now. Markets would experience low liquidity if the information was ever restricted.
The relationship between data feeds and mempools
In traditional finance, traders cannot make their own trades. They need a broker to process their trades and generally, the vendor supplying the market data feeds can double as a broker.
This model has been adopted into the world of trading digital currencies off-chain. For you see, in order for an off-chain transaction to be completed, there is also a need for a third-party to act as both guarantor and facilitator of the transaction.
Off-chain mempools are similar somewhat to data feeds in that they can furnish crypto investors with unique information that they would not find anywhere else.