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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.

How Does Network Congestion Affect Gas Fees for Smart Contract Execution?
What Role Do Gas Fees Play in Transaction Ordering on Proof-of-Work/proof-of-Stake Blockchains?
How Is the Concept of Scarcity in Block Space Similar to the Supply Constraint on a Physical Commodity Future?
What Is the Block Size Limit and How Does It Enforce Scarcity in Block Space?