Why Cheap Bitcoin Fees Are Unstable

Fee volatility is structural. Bitcoin's fee market is a pure auction. Congestion from a single large protocol like Ordinals or Runes creates exponential fee spikes, rendering cost predictions impossible for applications.

Cheap blocks are wasted capacity. A block with 1 MB of empty space is a permanent loss of settlement bandwidth. This creates a feast-or-famine cycle where low fees signal an underutilized and economically inefficient network.

Layer 2 solutions like Lightning abstract away on-chain volatility but introduce their own liquidity and routing complexities. The base layer's instability is merely exported, not eliminated, creating systemic risk for the entire stack.

Evidence: In April 2024, average Bitcoin transaction fees exceeded $128 during the Runes launch, collapsing to under $2 weeks later. This 6400%+ swing demonstrates the fee mirage.

Fixed block space supply creates a pure price auction. Bitcoin's 1MB base block and 10-minute interval are hard caps, making transaction inclusion a zero-sum game. When demand exceeds this fixed supply, fees become the sole clearing mechanism.

Fee volatility is structural, not incidental. Unlike Ethereum's base fee which smooths demand, Bitcoin's market has no algorithmic damping. A single large Ordinals inscription wave or BRC-20 mint instantly transforms a $0.50 fee environment into a $30+ frenzy.

The 'winner-take-all' block template incentivizes fee sniping. Miners maximize revenue by ordering transactions solely by fee rate (sat/vB). This creates a priority gas auction (PGA) dynamic where users engage in blind, overpaying bids to avoid being stuck in the next block's auction.

Evidence: The Mempool.space fee chart shows 3000%+ spikes within hours. The April 2024 halving block saw fees exceed 37 BTC ($2.4M), demonstrating the extreme revenue concentration from these volatile auctions.

Fee volatility is structural. Bitcoin's base layer has a fixed block space supply. Demand for this space is the only variable, creating a winner-take-all auction where fees spike during congestion. Layer 2s like Lightning Network or sidechains like Stacks attempt to circumvent this, but their security and liquidity are ultimately anchored to this volatile fee market.

Cheap L2s create centralization pressure. To offer stable, low fees, L2s must batch transactions and post proofs to L1. This creates a capital-intensive bottleneck for the sequencer. The entity controlling this role must absorb L1 fee spikes, incentivizing consolidation into a few large, well-funded operators to maintain stability, undermining decentralization.

The scaling trilemma persists. You can have two of: low fees, decentralization, or Bitcoin-level security. Stacks and Rootstock offer programmability with higher centralization. The Lightning Network offers speed but requires active channel management and faces liquidity fragmentation. True, stable scalability requires a fundamental protocol change Bitcoin is unwilling to make.

Evidence: The 2024 Runes launch saw average Bitcoin transaction fees exceed $128. During this period, activity on Lightning Network channels and L2s like Merlin Chain stalled, as their economic models broke under the cost of settling to the congested base layer.