Crystal formation. When batteries charge or discharge there is a chemical reaction happening. Elements in the battery are swapping atomic bonds and forming different chemicals. Many of these chemicals have a crystalline structure, and most of the time the batteries perform better if the crystals remain small.
What can happen, and isn’t very common in consumer use, is that batteries discharged to the same level repeatedly could cause larger crystals to form in certain spots in the battery, which would then cause the battery to fail when attempting to discharge it past that memory point. This was more likley to happen with NiCd batteries, especially those used in industrial applications where the duty cycle was very regular (e.g. a system that would go through an automated test of the system on a regular basis).
Nickel-Metal-hydride (NiMh) batteries are less prone to to this memory effect, though it was still possible. There are even some indications that certain lithium-ion chemistires have a memory effect. It’s worth noting that not all batteries of a general class have the exact same chemistry. I think NiCd batteries are still made today, and if they are they aren’t exactly the same as they were back in the 90s, and those 90s batteries had changes from the 80s, and so on. There are many variations in the chemistry of NiMh batteries, and many many different varieties of rechargeable lithium batteries.
The memory effect became a bogie man that got blamed for all sorts of battery failure. Not all degradation of battery chemistry is from a memory effect.
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