hi, apologies is this has already been answered. My understanding is that a finite number of transactions on bitcoin can be processed at a time, and transactions not done in that time sit in the 'mempool' where they presumably are queued.
Correct.
my question is, could a hostile party (such as a bank or competing ICO) simply grind bitcoin to a halt by permanently flooding the exchanges with tiny transactions between addresses they own, or is there something in place to prevent this?
Again you're right, they can try and to this.
Although technically is that they can't stop bitcoin, they will just end up with only their transactions getting processed, the block chain will go on.
And the mechanism in place is called fee.
You can try and do this, but you must compete with all the users and outbid them.
And at current price it's going to cost you around 15k per block. But when the bid wars starts be ready to spend triple the amount.
Is this what happened when the exchanges went down yesterday? also, is this risk inherent of all cryptocurrencies or only some of them?
Exchanges are not running on the chain. Nothing to do with transactions.
also, is this risk inherent of all cryptocurrencies or only some of them?
All can fall victim to such attack. The other cryptos have more space available but also are not used as heavenly.(bcash has 1/10 of the btc network tx)
If you have enough money you can spam even coins with 10Gb blocks.