How Does Network Congestion Influence the Average Transaction Fee?
Network congestion, which occurs when the number of pending transactions exceeds the capacity of the blocks being mined, directly increases the average transaction fee. Since block space is limited, users must compete with each other to have their transactions included quickly.
This competition creates a "fee market," where users bid higher fees to incentivize miners to prioritize their transactions, thus driving up the average fee.
Glossar
Pending Transactions
Confirmation ⎊ Pending transactions represent unconfirmed instructions within a distributed ledger, existing in a mempool prior to inclusion in a block.
Transaction Fees
Fee ⎊ Transaction fees, inherent in cryptocurrency, options, and derivatives markets, represent the cost of executing trades and utilizing network infrastructure.
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.