diff --git a/common/natspec/natspec_e2e_test.go b/common/natspec/natspec_e2e_test.go
index 147abe162..6bdaec8a1 100644
--- a/common/natspec/natspec_e2e_test.go
+++ b/common/natspec/natspec_e2e_test.go
@@ -220,7 +220,7 @@ func (self *testFrontend) applyTxs() {
 	block := self.ethereum.ChainManager().NewBlock(cb)
 	coinbase := self.stateDb.GetStateObject(cb)
 	coinbase.SetGasPool(big.NewInt(10000000))
-	txs := self.ethereum.TxPool().GetTransactions()
+	txs := self.ethereum.TxPool().GetQueuedTransactions()
 
 	for i := 0; i < len(txs); i++ {
 		for _, tx := range txs {
diff --git a/core/block_processor.go b/core/block_processor.go
index f33f0d433..af47069ad 100644
--- a/core/block_processor.go
+++ b/core/block_processor.go
@@ -258,7 +258,7 @@ func (sm *BlockProcessor) processWithParent(block, parent *types.Block) (logs st
 	state.Sync()
 
 	// Remove transactions from the pool
-	sm.txpool.RemoveSet(block.Transactions())
+	sm.txpool.RemoveTransactions(block.Transactions())
 
 	// This puts transactions in a extra db for rpc
 	for i, tx := range block.Transactions() {
diff --git a/core/chain_makers.go b/core/chain_makers.go
index 250671ef8..9b4911fba 100644
--- a/core/chain_makers.go
+++ b/core/chain_makers.go
@@ -108,7 +108,9 @@ func makeChain(bman *BlockProcessor, parent *types.Block, max int, db common.Dat
 // Create a new chain manager starting from given block
 // Effectively a fork factory
 func newChainManager(block *types.Block, eventMux *event.TypeMux, db common.Database) *ChainManager {
-	bc := &ChainManager{blockDb: db, stateDb: db, genesisBlock: GenesisBlock(db), eventMux: eventMux}
+	genesis := GenesisBlock(db)
+	bc := &ChainManager{blockDb: db, stateDb: db, genesisBlock: genesis, eventMux: eventMux}
+	bc.txState = state.ManageState(state.New(genesis.Root(), db))
 	bc.futureBlocks = NewBlockCache(1000)
 	if block == nil {
 		bc.Reset()
diff --git a/core/chain_manager.go b/core/chain_manager.go
index 1df56b27f..47f84b80a 100644
--- a/core/chain_manager.go
+++ b/core/chain_manager.go
@@ -576,7 +576,7 @@ func (self *ChainManager) InsertChain(chain types.Blocks) error {
 				})
 
 				self.setTransState(state.New(block.Root(), self.stateDb))
-				self.setTxState(state.New(block.Root(), self.stateDb))
+				self.txState.SetState(state.New(block.Root(), self.stateDb))
 
 				queue[i] = ChainEvent{block, logs}
 				queueEvent.canonicalCount++
diff --git a/core/error.go b/core/error.go
index 0642948cd..40db99ecd 100644
--- a/core/error.go
+++ b/core/error.go
@@ -81,7 +81,7 @@ func (err *NonceErr) Error() string {
 }
 
 func NonceError(is, exp uint64) *NonceErr {
-	return &NonceErr{Message: fmt.Sprintf("Transaction w/ invalid nonce (%d / %d)", is, exp), Is: is, Exp: exp}
+	return &NonceErr{Message: fmt.Sprintf("Transaction w/ invalid nonce. tx=%d  state=%d)", is, exp), Is: is, Exp: exp}
 }
 
 func IsNonceErr(err error) bool {
diff --git a/core/transaction_pool.go b/core/transaction_pool.go
index eaddcfa09..392e17856 100644
--- a/core/transaction_pool.go
+++ b/core/transaction_pool.go
@@ -4,7 +4,9 @@ import (
 	"errors"
 	"fmt"
 	"math/big"
+	"sort"
 	"sync"
+	"time"
 
 	"github.com/ethereum/go-ethereum/common"
 	"github.com/ethereum/go-ethereum/core/state"
@@ -17,7 +19,7 @@ import (
 
 var (
 	ErrInvalidSender      = errors.New("Invalid sender")
-	ErrImpossibleNonce    = errors.New("Impossible nonce")
+	ErrNonce              = errors.New("Nonce too low")
 	ErrNonExistentAccount = errors.New("Account does not exist")
 	ErrInsufficientFunds  = errors.New("Insufficient funds")
 	ErrIntrinsicGas       = errors.New("Intrinsic gas too low")
@@ -54,20 +56,43 @@ type TxPool struct {
 	txs           map[common.Hash]*types.Transaction
 	invalidHashes *set.Set
 
+	queue map[common.Address]types.Transactions
+
 	subscribers []chan TxMsg
 
 	eventMux *event.TypeMux
 }
 
 func NewTxPool(eventMux *event.TypeMux, currentStateFn stateFn) *TxPool {
-	return &TxPool{
+	txPool := &TxPool{
 		txs:           make(map[common.Hash]*types.Transaction),
+		queue:         make(map[common.Address]types.Transactions),
 		queueChan:     make(chan *types.Transaction, txPoolQueueSize),
 		quit:          make(chan bool),
 		eventMux:      eventMux,
 		invalidHashes: set.New(),
 		currentState:  currentStateFn,
 	}
+	return txPool
+}
+
+func (pool *TxPool) Start() {
+	// Queue timer will tick so we can attempt to move items from the queue to the
+	// main transaction pool.
+	queueTimer := time.NewTicker(300 * time.Millisecond)
+	// Removal timer will tick and attempt to remove bad transactions (account.nonce>tx.nonce)
+	removalTimer := time.NewTicker(1 * time.Second)
+done:
+	for {
+		select {
+		case <-queueTimer.C:
+			pool.checkQueue()
+		case <-removalTimer.C:
+			pool.validatePool()
+		case <-pool.quit:
+			break done
+		}
+	}
 }
 
 func (pool *TxPool) ValidateTransaction(tx *types.Transaction) error {
@@ -100,16 +125,12 @@ func (pool *TxPool) ValidateTransaction(tx *types.Transaction) error {
 	}
 
 	if pool.currentState().GetNonce(from) > tx.Nonce() {
-		return ErrImpossibleNonce
+		return ErrNonce
 	}
 
 	return nil
 }
 
-func (self *TxPool) addTx(tx *types.Transaction) {
-	self.txs[tx.Hash()] = tx
-}
-
 func (self *TxPool) add(tx *types.Transaction) error {
 	hash := tx.Hash()
 
@@ -127,7 +148,7 @@ func (self *TxPool) add(tx *types.Transaction) error {
 		return err
 	}
 
-	self.addTx(tx)
+	self.queueTx(tx)
 
 	var toname string
 	if to := tx.To(); to != nil {
@@ -144,9 +165,6 @@ func (self *TxPool) add(tx *types.Transaction) error {
 		glog.Infof("(t) %x => %s (%v) %x\n", from, toname, tx.Value, tx.Hash())
 	}
 
-	// Notify the subscribers
-	go self.eventMux.Post(TxPreEvent{tx})
-
 	return nil
 }
 
@@ -189,34 +207,108 @@ func (self *TxPool) GetTransactions() (txs types.Transactions) {
 	return
 }
 
-func (self *TxPool) RemoveSet(txs types.Transactions) {
+func (self *TxPool) GetQueuedTransactions() types.Transactions {
+	self.mu.RLock()
+	defer self.mu.RUnlock()
+
+	var txs types.Transactions
+	for _, ts := range self.queue {
+		txs = append(txs, ts...)
+	}
+
+	return txs
+}
+
+func (self *TxPool) RemoveTransactions(txs types.Transactions) {
 	self.mu.Lock()
 	defer self.mu.Unlock()
+
 	for _, tx := range txs {
 		delete(self.txs, tx.Hash())
 	}
 }
 
-func (self *TxPool) InvalidateSet(hashes *set.Set) {
-	self.mu.Lock()
-	defer self.mu.Unlock()
-
-	hashes.Each(func(v interface{}) bool {
-		delete(self.txs, v.(common.Hash))
-		return true
-	})
-	self.invalidHashes.Merge(hashes)
-}
-
 func (pool *TxPool) Flush() {
 	pool.txs = make(map[common.Hash]*types.Transaction)
 }
 
-func (pool *TxPool) Start() {
-}
-
 func (pool *TxPool) Stop() {
 	pool.Flush()
+	close(pool.quit)
 
 	glog.V(logger.Info).Infoln("TX Pool stopped")
 }
+
+func (self *TxPool) queueTx(tx *types.Transaction) {
+	from, _ := tx.From()
+	self.queue[from] = append(self.queue[from], tx)
+}
+
+func (pool *TxPool) addTx(tx *types.Transaction) {
+	if _, ok := pool.txs[tx.Hash()]; !ok {
+		pool.txs[tx.Hash()] = tx
+		// Notify the subscribers. This event is posted in a goroutine
+		// because it's possible that somewhere during the post "Remove transaction"
+		// gets called which will then wait for the global tx pool lock and deadlock.
+		go pool.eventMux.Post(TxPreEvent{tx})
+	}
+}
+
+// check queue will attempt to insert
+func (pool *TxPool) checkQueue() {
+	pool.mu.Lock()
+	defer pool.mu.Unlock()
+
+	statedb := pool.currentState()
+	for address, txs := range pool.queue {
+		sort.Sort(types.TxByNonce{txs})
+
+		var (
+			nonce = statedb.GetNonce(address)
+			start int
+		)
+		// Clean up the transactions first and determine the start of the nonces
+		for _, tx := range txs {
+			if tx.Nonce() >= nonce {
+				break
+			}
+			start++
+		}
+		pool.queue[address] = txs[start:]
+
+		// expected nonce
+		enonce := nonce
+		for _, tx := range pool.queue[address] {
+			// If the expected nonce does not match up with the next one
+			// (i.e. a nonce gap), we stop the loop
+			if enonce != tx.Nonce() {
+				break
+			}
+			enonce++
+
+			pool.addTx(tx)
+		}
+		//pool.queue[address] = txs[i:]
+		// delete the entire queue entry if it's empty. There's no need to keep it
+		if len(pool.queue[address]) == 0 {
+			delete(pool.queue, address)
+		}
+	}
+}
+
+func (pool *TxPool) validatePool() {
+	pool.mu.Lock()
+	defer pool.mu.Unlock()
+
+	statedb := pool.currentState()
+	for hash, tx := range pool.txs {
+		from, _ := tx.From()
+		if nonce := statedb.GetNonce(from); nonce > tx.Nonce() {
+			if glog.V(logger.Debug) {
+				glog.Infof("removed tx (%x) from pool due to nonce error. state=%d tx=%d\n", hash[:4], nonce, tx.Nonce())
+			}
+
+			delete(pool.txs, hash)
+		}
+	}
+}
diff --git a/core/transaction_pool_test.go b/core/transaction_pool_test.go
index b7486adb3..0e049139e 100644
--- a/core/transaction_pool_test.go
+++ b/core/transaction_pool_test.go
@@ -56,7 +56,57 @@ func TestInvalidTransactions(t *testing.T) {
 	tx.SignECDSA(key)
 
 	err = pool.Add(tx)
-	if err != ErrImpossibleNonce {
-		t.Error("expected", ErrImpossibleNonce)
+	if err != ErrNonce {
+		t.Error("expected", ErrNonce)
+	}
+}
+
+func TestTransactionQueue(t *testing.T) {
+	pool, key := setupTxPool()
+	tx := transaction()
+	tx.SignECDSA(key)
+	from, _ := tx.From()
+	pool.currentState().AddBalance(from, big.NewInt(1))
+	pool.queueTx(tx)
+
+	pool.checkQueue()
+	if len(pool.txs) != 1 {
+		t.Error("expected valid txs to be 1 is", len(pool.txs))
+	}
+
+	tx = transaction()
+	tx.SignECDSA(key)
+	from, _ = tx.From()
+	pool.currentState().SetNonce(from, 10)
+	tx.SetNonce(1)
+	pool.queueTx(tx)
+	pool.checkQueue()
+	if _, ok := pool.txs[tx.Hash()]; ok {
+		t.Error("expected transaction to be in tx pool")
+	}
+
+	if len(pool.queue[from]) != 0 {
+		t.Error("expected transaction queue to be empty. is", len(pool.queue[from]))
+	}
+
+	pool, key = setupTxPool()
+	tx1, tx2, tx3 := transaction(), transaction(), transaction()
+	tx2.SetNonce(10)
+	tx3.SetNonce(11)
+	tx1.SignECDSA(key)
+	tx2.SignECDSA(key)
+	tx3.SignECDSA(key)
+	pool.queueTx(tx1)
+	pool.queueTx(tx2)
+	pool.queueTx(tx3)
+	from, _ = tx1.From()
+	pool.checkQueue()
+
+	if len(pool.txs) != 1 {
+		t.Error("expected tx pool to be 1 =")
+	}
+
+	if len(pool.queue[from]) != 3 {
+		t.Error("expected transaction queue to be empty. is", len(pool.queue[from]))
 	}
 }
diff --git a/eth/backend.go b/eth/backend.go
index 88456e448..646a4eaf2 100644
--- a/eth/backend.go
+++ b/eth/backend.go
@@ -3,7 +3,6 @@ package eth
 import (
 	"crypto/ecdsa"
 	"fmt"
-	"math"
 	"path"
 	"strings"
 
@@ -136,11 +135,10 @@ type Ethereum struct {
 	protocolManager *ProtocolManager
 	downloader      *downloader.Downloader
 
-	net           *p2p.Server
-	eventMux      *event.TypeMux
-	txSub         event.Subscription
-	minedBlockSub event.Subscription
-	miner         *miner.Miner
+	net      *p2p.Server
+	eventMux *event.TypeMux
+	txSub    event.Subscription
+	miner    *miner.Miner
 
 	// logger logger.LogSystem
 
@@ -222,7 +220,7 @@ func New(config *Config) (*Ethereum, error) {
 	eth.whisper = whisper.New()
 	eth.shhVersionId = int(eth.whisper.Version())
 	eth.miner = miner.New(eth, eth.pow, config.MinerThreads)
-	eth.protocolManager = NewProtocolManager(config.ProtocolVersion, config.NetworkId, eth.txPool, eth.chainManager, eth.downloader)
+	eth.protocolManager = NewProtocolManager(config.ProtocolVersion, config.NetworkId, eth.eventMux, eth.txPool, eth.chainManager, eth.downloader)
 
 	netprv, err := config.nodeKey()
 	if err != nil {
@@ -379,7 +377,8 @@ func (s *Ethereum) Start() error {
 	}
 
 	// Start services
-	s.txPool.Start()
+	go s.txPool.Start()
+	s.protocolManager.Start()
 
 	if s.whisper != nil {
 		s.whisper.Start()
@@ -389,10 +388,6 @@ func (s *Ethereum) Start() error {
 	s.txSub = s.eventMux.Subscribe(core.TxPreEvent{})
 	go s.txBroadcastLoop()
 
-	// broadcast mined blocks
-	s.minedBlockSub = s.eventMux.Subscribe(core.NewMinedBlockEvent{})
-	go s.minedBroadcastLoop()
-
 	glog.V(logger.Info).Infoln("Server started")
 	return nil
 }
@@ -422,9 +417,9 @@ func (s *Ethereum) Stop() {
 	defer s.stateDb.Close()
 	defer s.extraDb.Close()
 
-	s.txSub.Unsubscribe()         // quits txBroadcastLoop
-	s.minedBlockSub.Unsubscribe() // quits blockBroadcastLoop
+	s.txSub.Unsubscribe() // quits txBroadcastLoop
 
+	s.protocolManager.Stop()
 	s.txPool.Stop()
 	s.eventMux.Stop()
 	if s.whisper != nil {
@@ -440,13 +435,10 @@ func (s *Ethereum) WaitForShutdown() {
 	<-s.shutdownChan
 }
 
-// now tx broadcasting is taken out of txPool
-// handled here via subscription, efficiency?
 func (self *Ethereum) txBroadcastLoop() {
 	// automatically stops if unsubscribe
 	for obj := range self.txSub.Chan() {
 		event := obj.(core.TxPreEvent)
-		self.net.BroadcastLimited("eth", TxMsg, math.Sqrt, []*types.Transaction{event.Tx})
 		self.syncAccounts(event.Tx)
 	}
 }
@@ -465,16 +457,6 @@ func (self *Ethereum) syncAccounts(tx *types.Transaction) {
 	}
 }
 
-func (self *Ethereum) minedBroadcastLoop() {
-	// automatically stops if unsubscribe
-	for obj := range self.minedBlockSub.Chan() {
-		switch ev := obj.(type) {
-		case core.NewMinedBlockEvent:
-			self.protocolManager.BroadcastBlock(ev.Block.Hash(), ev.Block)
-		}
-	}
-}
-
 func saveProtocolVersion(db common.Database, protov int) {
 	d, _ := db.Get([]byte("ProtocolVersion"))
 	protocolVersion := common.NewValue(d).Uint()
diff --git a/eth/handler.go b/eth/handler.go
index 622f22132..d466dbfee 100644
--- a/eth/handler.go
+++ b/eth/handler.go
@@ -44,6 +44,7 @@ import (
 	"github.com/ethereum/go-ethereum/core"
 	"github.com/ethereum/go-ethereum/core/types"
 	"github.com/ethereum/go-ethereum/eth/downloader"
+	"github.com/ethereum/go-ethereum/event"
 	"github.com/ethereum/go-ethereum/logger"
 	"github.com/ethereum/go-ethereum/logger/glog"
 	"github.com/ethereum/go-ethereum/p2p"
@@ -77,12 +78,17 @@ type ProtocolManager struct {
 	peers map[string]*peer
 
 	SubProtocol p2p.Protocol
+
+	eventMux      *event.TypeMux
+	txSub         event.Subscription
+	minedBlockSub event.Subscription
 }
 
 // NewProtocolManager returns a new ethereum sub protocol manager. The Ethereum sub protocol manages peers capable
 // with the ethereum network.
-func NewProtocolManager(protocolVersion, networkId int, txpool txPool, chainman *core.ChainManager, downloader *downloader.Downloader) *ProtocolManager {
+func NewProtocolManager(protocolVersion, networkId int, mux *event.TypeMux, txpool txPool, chainman *core.ChainManager, downloader *downloader.Downloader) *ProtocolManager {
 	manager := &ProtocolManager{
+		eventMux:   mux,
 		txpool:     txpool,
 		chainman:   chainman,
 		downloader: downloader,
@@ -105,6 +111,21 @@ func NewProtocolManager(protocolVersion, networkId int, txpool txPool, chainman
 	return manager
 }
 
+func (pm *ProtocolManager) Start() {
+	// broadcast transactions
+	pm.txSub = pm.eventMux.Subscribe(core.TxPreEvent{})
+	go pm.txBroadcastLoop()
+
+	// broadcast mined blocks
+	pm.minedBlockSub = pm.eventMux.Subscribe(core.NewMinedBlockEvent{})
+	go pm.minedBroadcastLoop()
+}
+
+func (pm *ProtocolManager) Stop() {
+	pm.txSub.Unsubscribe()         // quits txBroadcastLoop
+	pm.minedBlockSub.Unsubscribe() // quits blockBroadcastLoop
+}
+
 func (pm *ProtocolManager) newPeer(pv, nv int, p *p2p.Peer, rw p2p.MsgReadWriter) *peer {
 
 	td, current, genesis := pm.chainman.Status()
@@ -326,10 +347,51 @@ func (pm *ProtocolManager) BroadcastBlock(hash common.Hash, block *types.Block)
 		}
 	}
 	// Broadcast block to peer set
-	// XXX due to the current shit state of the network disable the limit
 	peers = peers[:int(math.Sqrt(float64(len(peers))))]
 	for _, peer := range peers {
 		peer.sendNewBlock(block)
 	}
 	glog.V(logger.Detail).Infoln("broadcast block to", len(peers), "peers")
 }
+
+// BroadcastTx will propagate the block to its connected peers. It will sort
+// out which peers do not contain the block in their block set and will do a
+// sqrt(peers) to determine the amount of peers we broadcast to.
+func (pm *ProtocolManager) BroadcastTx(hash common.Hash, tx *types.Transaction) {
+	pm.pmu.Lock()
+	defer pm.pmu.Unlock()
+
+	// Find peers who don't know anything about the given hash. Peers that
+	// don't know about the hash will be a candidate for the broadcast loop
+	var peers []*peer
+	for _, peer := range pm.peers {
+		if !peer.txHashes.Has(hash) {
+			peers = append(peers, peer)
+		}
+	}
+	// Broadcast block to peer set
+	peers = peers[:int(math.Sqrt(float64(len(peers))))]
+	for _, peer := range peers {
+		peer.sendTransaction(tx)
+	}
+	glog.V(logger.Detail).Infoln("broadcast tx to", len(peers), "peers")
+}
+
+// Mined broadcast loop
+func (self *ProtocolManager) minedBroadcastLoop() {
+	// automatically stops if unsubscribe
+	for obj := range self.minedBlockSub.Chan() {
+		switch ev := obj.(type) {
+		case core.NewMinedBlockEvent:
+			self.BroadcastBlock(ev.Block.Hash(), ev.Block)
+		}
+	}
+}
+
+func (self *ProtocolManager) txBroadcastLoop() {
+	// automatically stops if unsubscribe
+	for obj := range self.txSub.Chan() {
+		event := obj.(core.TxPreEvent)
+		self.BroadcastTx(event.Tx.Hash(), event.Tx)
+	}
+}
diff --git a/eth/peer.go b/eth/peer.go
index 972880845..ec0c4b1f3 100644
--- a/eth/peer.go
+++ b/eth/peer.go
@@ -86,6 +86,12 @@ func (p *peer) sendNewBlock(block *types.Block) error {
 	return p2p.Send(p.rw, NewBlockMsg, []interface{}{block, block.Td})
 }
 
+func (p *peer) sendTransaction(tx *types.Transaction) error {
+	p.txHashes.Add(tx.Hash())
+
+	return p2p.Send(p.rw, TxMsg, []*types.Transaction{tx})
+}
+
 func (p *peer) requestHashes(from common.Hash) error {
 	glog.V(logger.Debug).Infof("[%s] fetching hashes (%d) %x...\n", p.id, maxHashes, from[:4])
 	return p2p.Send(p.rw, GetBlockHashesMsg, getBlockHashesMsgData{from, maxHashes})
diff --git a/miner/worker.go b/miner/worker.go
index dc1f04d87..19ede3c93 100644
--- a/miner/worker.go
+++ b/miner/worker.go
@@ -258,7 +258,7 @@ func (self *worker) commitNewWork() {
 		tcount             = 0
 		ignoredTransactors = set.New()
 	)
-	//gasLimit:
+
 	for _, tx := range transactions {
 		// We can skip err. It has already been validated in the tx pool
 		from, _ := tx.From()
@@ -290,13 +290,12 @@ func (self *worker) commitNewWork() {
 			// ignore the transactor so no nonce errors will be thrown for this account
 			// next time the worker is run, they'll be picked up again.
 			ignoredTransactors.Add(from)
-			//glog.V(logger.Debug).Infof("Gas limit reached for block. %d TXs included in this block\n", i)
-			//break gasLimit
+
+			glog.V(logger.Detail).Infof("Gas limit reached for (%x) in this block. Continue to try smaller txs\n", from[:4])
 		default:
 			tcount++
 		}
 	}
-	//self.eth.TxPool().InvalidateSet(remove)
 
 	var (
 		uncles    []*types.Header
diff --git a/xeth/xeth.go b/xeth/xeth.go
index afcb33e4c..251b070e4 100644
--- a/xeth/xeth.go
+++ b/xeth/xeth.go
@@ -682,9 +682,11 @@ func (self *XEth) Transact(fromStr, toStr, valueStr, gasStr, gasPriceStr, codeSt
 
 	if contractCreation {
 		addr := core.AddressFromMessage(tx)
-		glog.V(logger.Info).Infof("Contract addr %x\n", addr)
+		glog.V(logger.Info).Infof("Tx(%x) created: %x\n", tx.Hash(), addr)
 
 		return core.AddressFromMessage(tx).Hex(), nil
+	} else {
+		glog.V(logger.Info).Infof("Tx(%x) to: %x\n", tx.Hash(), tx.To())
 	}
 	return tx.Hash().Hex(), nil
 }