Why do cryptocurrency transaction fees fluctuate so much?

Cryptocurrency transaction fees fluctuate widely because fees are set by market dynamics on top of protocol rules that constrain supply. When many users want inclusion in the next block, limited transaction capacity creates competition. Miners or validators choose transactions that pay more, so wallets and fee-estimation services adjust bids in real time, producing rapid swings in the fee level. Arvind Narayanan at Princeton University and his coauthors Joseph Bonneau at New York University and Edward Felten at Princeton University describe this interaction between scarce block space and user demand in their textbook Bitcoin and Cryptocurrency Technologies, explaining why congestion drives fee spikes.

Supply, demand, and short-term volatility

Blocks on most Proof-of-Work and many Proof-of-Stake chains have fixed or effectively limited capacity per time interval. That makes space for transactions a scarce commodity when activity rises. Demand can surge for many reasons that are cultural or application-driven: a popular token launch, an auction, a decentralized finance liquidations cascade, or a coordinated social-media event can create sudden bursts of transactions. Wallet software attempts to predict how much fee will be necessary for timely inclusion, and those predictions feed back into the market. Because miners prioritize higher-fee transactions, a small cluster of high bids can push average fees up sharply until congestion subsides.

Protocol design, fee markets, and mitigation

Protocol choices change how fees behave. Ethereum’s London upgrade introduced a base fee mechanism intended to stabilize the short-term fee auction and reduce the winner-take-all bidding pressure. Vitalik Buterin at the Ethereum Foundation proposed this mechanism to make fee estimation more predictable, though it does not eliminate volatility during extreme demand spikes. Layer-2 scaling solutions such as the Lightning Network for Bitcoin or rollups for Ethereum move many payments off the main chain, reducing on-chain demand and smoothing fees for smaller, frequent transactions. Researchers and practitioners emphasize that design trade-offs determine whether the fee market favors predictable, lower fees at the cost of different centralization or complexity risks.

Consequences for users, markets, and territories

High and unpredictable fees have social and economic consequences. They make microtransactions uneconomical and can exclude users in low-income regions where small-value transfers matter most, shifting activity toward custodial services that may reduce privacy and decentralization. Fee spikes also alter business models for applications, favoring large-value transfers and institutional use. Geographic shifts in mining and validation influence system resilience and the cost dynamics of maintaining the network. Garrick Hileman at the Cambridge Centre for Alternative Finance has documented regional migrations of mining activity that affect local electricity demand and the political economy around mining.

Understanding fee volatility requires seeing it as a systemic feature produced by user behavior, protocol rules, miner incentives, and off-chain alternatives. Policy choices, software design, and cultural patterns of use all shape when and how often fees spike, and each proposed fix carries trade-offs that must be weighed against decentralization, security, and accessibility.