How Does a Small Block Size Limit Contribute to Fee Market Volatility?
A small block size limit creates a fixed, scarce resource (block space). When transaction demand exceeds this fixed supply, users must compete by bidding higher fees to get their transactions included quickly.
This competitive bidding process leads to extreme volatility in transaction fees, especially during periods of peak network usage, as the supply cannot instantaneously adjust to the demand.
Glossar
Block Size Limit
Constraint ⎊ Block size limit, within cryptocurrency networks, fundamentally dictates the maximum data volume permitted within a single block added to the blockchain.
Small Block Size
Constraint ⎊ Small Block Size represents a deliberate protocol constraint that limits the maximum amount of transaction data permitted within a single block, directly restricting the network's raw transaction throughput.
Competitive Bidding Process
Mechanism ⎊ Competitive bidding processes within cryptocurrency, options trading, and financial derivatives function as price discovery mechanisms, establishing fair value through iterative offers.