Why do crypto transaction fees fluctuate so much?

Cryptocurrency transaction fees fluctuate because the market that sets them is both highly dynamic and tightly constrained. Supply of on-chain space is limited by protocol rules and block/slot capacity, while demand swings with user activity, decentralized application usage, and speculative events. Economic mechanisms inside protocols determine how that limited capacity is allocated, and differences in those mechanisms produce varying levels of volatility across networks.

Network congestion and auction dynamics
Blockchains historically use fee auctions to prioritize transactions. Arvind Narayanan at Princeton University has explained how mempools collect competing transactions and miners or validators select the highest-paying ones when space is scarce. In first-price auction models, common in many early implementations, users bid fees and often overpay during competition because each must guess what others will offer. Tim Roughgarden at Columbia University has analyzed how auction formats affect strategic behavior and efficiency; his work shows that poorly designed mechanisms can produce wasteful bidding and unpredictable price swings. Ethereum’s 2021 reform EIP-1559, advanced by Vitalik Buterin at the Ethereum Foundation among others, replaced pure first-price bidding with a base fee that adjusts with congestion and a tip for fast inclusion. That change reduced some volatility by making base fees algorithmically responsive, but it did not eliminate short-term spikes driven by sudden demand.

Transaction complexity, MEV, and protocol design
Not all transactions are equal. Smart contracts consume variable amounts of gas, so a block’s effective capacity depends on the mix of simple transfers and complex contract calls. Protocol researchers and practitioners highlight that application-level behavior matters: token launches, decentralized exchange activity, and NFT drops can rapidly increase demand. Research by Philip Daian at Cornell University and collaborators on MEV, maximal extractable value, documents how value hidden in transaction ordering incentivizes reordering, cancellation, and priority bidding, further amplifying fee volatility. Miner and validator strategies, such as adjusting gas limits or selectively including transactions for affinity to their own interests, also affect short-term fee dynamics.

Consequences and contextual nuance
The consequences reach beyond wallets. Volatile fees degrade user experience, push small-value transactions off-chain, and encourage migration to Layer 2 scaling solutions and alternative chains. From a social perspective, high and unpredictable fees can exclude users in low-income regions from participating in decentralized finance and cultural token economies, concentrating access among wealthier participants or institutions. Environmentally, fee-driven activity patterns can influence validator workload and energy usage on proof-of-work chains, while protocol changes that burn fees, as in EIP-1559, alter tokenomics and community incentives. Designing more resilient fee mechanisms requires interdisciplinary work: economists and mechanism designers such as Tim Roughgarden, blockchain engineers like Vitalik Buterin and team at the Ethereum Foundation, and empirical researchers including Arvind Narayanan at Princeton University and Philip Daian at Cornell University contribute complementary perspectives that together clarify why fees fluctuate and how protocol and market responses can mitigate—but not fully eliminate—instability.