Crypto Fees Soar When Networks Get Congested

Crypto transactions are often associated with fast and cheap transfers, but sometimes users find themselves paying astronomical fees for sending small amounts of money. This phenomenon can be puzzling, especially when the network fee exceeds the payment itself by two or three times.

The reason behind this lies in the limitations of most crypto networks. Each block in a blockchain has a limited capacity to hold transactions, which necessitates fees to prevent malicious actors from flooding the network with worthless transactions, also known as spam.

The main culprit behind high fees is congestion on the network during periods of heavy demand. This can happen when many users are trying to send transactions at the same time, overwhelming the network's capacity. Bitcoin, for example, has a relatively low transaction per second (TPS) rate of 3-7 TPS, while Ethereum processes 15-30 TPS. In contrast, Polygon offers up to 1,000 TPS and Visa handles over 83,000 TPS.

When the network is congested, fees skyrocket, as seen in Bitcoin's past experiences before the SegWit update in 2017 and after the arrival of Ordinals (NFTs) in 2024. Average transaction fees reached as high as $127 during these periods. Ethereum also experienced similar spikes in fees during NFT crazes and intense trading.

To avoid paying more in fees than the amount sent, users can wait for quieter periods when network activity decreases and fees shrink. Alternatively, they can use technologies like the Lightning Network on Bitcoin or Layer-2 solutions on other networks that allow small transactions to move outside the main chain with much lower costs and higher speeds.