How Do Transaction Fees Change Based on Network Congestion and Block Space?
Transaction fees are primarily driven by the supply and demand for block space. When the network is congested and there are more pending transactions than available space in the next block, the competition among users to have their transaction included drives up the fee.
Miners prioritize transactions with higher fees to maximize their revenue. This dynamic creates a market for block space, leading to volatile fee prices during peak demand.
Glossar
Transaction Fees
Cost ⎊ Transaction fees represent a quantifiable expense incurred for processing and validating transactions across diverse financial systems, functioning as a critical component of network participation and security.
Supply and Demand
Equilibrium ⎊ The interplay of supply and demand fundamentally shapes pricing dynamics within cryptocurrency derivatives, options trading, and broader financial derivatives markets.
Network Congestion
Latency ⎊ Network congestion within cryptocurrency, options trading, and financial derivatives manifests as increased latency, directly impacting execution speeds and potentially leading to adverse selection against slower participants.
Pending Transactions
Confirmation ⎊ Pending transactions represent unconfirmed instructions within a distributed ledger, existing in a mempool prior to inclusion in a block.