Why are crypto transaction fees so volatile?

Blockchains price a scarce commodity: block space. When demand for transactions exceeds the capacity of blocks, users bid to have their transactions included, producing rapid swings in fees. Arvind Narayanan, Princeton University, explains that limited throughput and first-price bidding historically forced users into fee auctions that spike whenever attention or activity concentrates on the chain. That basic supply and demand mechanism makes fees sensitive to sudden surges in use.

Fee markets and blockspace scarcity

Protocol rules that define block size and block time create a fixed short-term supply. Miners or validators choose which transactions to include, and wallets or users set fees to compete for inclusion. Phil Daian, Cornell University, showed how decentralized finance activity and bots seeking Maximal Extractable Value create concentrated bursts of competition that dramatically raise fees while the mempool backlog clears. These technical dynamics interact with human behaviors such as fee estimation errors, coordinated launches of tokens or NFTs, and speculative trading, producing volatile fee patterns.

Protocol changes and demand shocks

Protocol-level changes can reduce volatility but also create transitional uncertainty. Vitalik Buterin, Ethereum Foundation, proposed and implemented EIP-1559 to replace raw first-price bidding with a base fee algorithm that adjusts block-by-block and burns that base fee. That design damped some unpredictability by giving wallets a clearer price signal, yet tips and sudden demand spikes continue to push costs up during periods of high activity. Off-chain phenomena such as new decentralized applications, token airdrops, or cross-border flows turn cultural events into on-chain congestion, as seen when popular NFT drops have temporarily overwhelmed networks and raised fees to levels that exclude casual users.

Consequences and broader context

Volatile fees matter because they affect accessibility and the economic viability of applications. High short-term fees can price out low-value transactions, pushing users toward centralized alternatives or layer-two scaling solutions that require trust trade-offs. Hyun Song Shin, Bank for International Settlements, has warned that extreme volatility in crypto markets can amplify frictions that spill over into broader financial systems when integration grows. In regions where remittances or informal value transfers rely on cryptocurrencies, sudden fee spikes can raise costs for vulnerable populations and alter patterns of use.

Longer-term incentives also shift with fee dynamics. In proof-of-work chains, miners rely on fee revenue in addition to block subsidies, and halving events change the relative importance of fees. That economic feedback can influence miner behavior and the development of fee optimization strategies. Environmental considerations enter indirectly: persistent on-chain demand without scaling can incentivize continued use of resource-intensive settlement layers, while effective layer-two adoption can reduce on-chain pressure and lower overall energy tied to settlement per transaction.

Mitigations include protocol redesigns, better fee estimation in wallets, adoption of layer-two and sidechain technologies, and market mechanisms that smooth demand surges. Understanding fee volatility therefore requires combining technical knowledge of consensus rules with social and economic context, recognizing that cultural events, developer choices, and territorial usage patterns all shape the unpredictable price of getting included on-chain.