​When demand exceeds supply, the network becomes congested. Fee markets act as a "pressure valve," using price to determine which transactions are important enough to be included in the next block.

​1. How Congestion Happens: The "Bus" Analogy

​Think of a blockchain as a bus service (the network) where a new bus arrives every few seconds (a block).

​The Seats: Each bus has a fixed number of seats (block size/gas limit).

​The Passengers: Users wanting to send transactions.

​The Bidding: When more people are at the stop than there are seats on the bus, the "bus driver" (validator) picks the passengers who offer the highest tip.

​2. Evolution of Fee Markets

​The design of these markets has evolved significantly to handle "bidding wars" and improve user experience.

​A. First-Price Auctions (The "Old" Way)

​Used by Bitcoin and "Legacy" Ethereum. Users bid a price per unit of data.

​The Problem: It’s a blind auction. Users don't know what others are bidding, so they often overpay by 50\% or more just to be "safe," or they underbid and get stuck in the queue for hours.

​Outcome: High "welfare loss" and unpredictable fees.

​B. EIP-1559: The "Base Fee" Model (The "New" Way)

​Ethereum's 2021 upgrade changed the game by introducing a market rate.

​Base Fee: A protocol-set price that everyone must pay. If the previous block was more than 50% full, the base fee automatically increases by 12.5%. If it was less than 50% full, it decreases.

​The Burn: The base fee is burned (destroyed), making ETH deflationary.

​Priority Fee (Tip): An optional small tip to validators to skip the line during extreme spikes.

​Benefit: Fees become predictable. Your wallet can tell you exactly what the "market rate" is, preventing overpayment.

​C. Localized/Multidimensional Fee Markets (The Solana/Advanced Way)

​Traditional markets are "global"—if a popular NFT drop happens, it makes sending a simple $10 payment to a friend expensive for everyone.

​The Design: Modern networks like Solana use Localized Fee Markets. If demand spikes for one specific smart contract (like a specific NFT mint), only transactions interacting with that contract pay higher fees. The rest of the network remains cheap.

3. The "Economic Degradation" vs. "Technical Degradation"

​Different networks handle extreme congestion in different ways:

​Economic Degradation (Ethereum): The network never "breaks," but it becomes so expensive that only "whales" can afford to use it. The security holds, but the utility for average users vanishes.

​Technical Degradation (High-Throughput Chains): Fees stay low, but the sheer volume of data can overwhelm individual nodes, leading to "forking," delayed finality, or temporary network restarts.

​Key Takeaway: High fees are not a "bug"; they are a sign that the market is working to protect the network from being spam-attacked. However, they indicate a need for Scaling (moving transactions to Layer 2).

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