Blockchain Basics Module
Fees & Incentives
How blockchains price scarce block space and how incentives shape participant behavior
Core path (recommended): Scarcity → Gas → Fee markets → Rewards/security budget → MEV basics → Incentive misalignments
This is the required path to complete the module. All other articles are optional.
Start core pathWhat this module covers
Fees exist because block space is scarce and security requires resource constraints.
This module covers gas/resource pricing, fee markets under congestion, rewards and security budgets, and MEV as a consequence of incentives — not a hack.
Hard stop: before protocol-specific economics, advanced MEV, and scaling optimizations.
This module is for
- Anyone who wants to understand why using blockchains costs money
- Developers who need correct mental models for fee estimation, congestion, and ordering
- Users trying to understand fee spikes, inclusion priority, and MEV at a high level
This module is not
- Protocol-specific economics and chain-specific parameter tuning
- Advanced MEV tactics or exploit education
- Scaling optimizations and L2 design details (next module)
Stage 0
Orientation: Scarcity & Pricing
Why does it cost money to use a blockchain at all?
See fees as a consequence of scarcity and security, not “protocol greed”.
Core
Why Transactions Cost Money
Supporting (intuition)
Optional intuition and mental models.
Why Free Transactions Don’t Scale
Fees vs Centralized Pricing (Intuition)
Reference (how to observe the system)
Optional verification via explorers, clients, wallets, and documentation.
Typical Fee Spikes Under Load (Conceptual)
You can move on when:
- You can explain fees as pricing scarce block space.
- You can explain why free transactions don’t scale in an open network.
- You can separate network policy from the scarcity constraint.
Stage 1
Gas & Resource Pricing
What exactly are users paying for?
Connect user actions to consumed resources (compute, storage, bandwidth policy).
Core
Gas Fee
Supporting (intuition)
Optional intuition and mental models.
Fee Estimation and Priority
Reference (how to observe the system)
Optional verification via explorers, clients, wallets, and documentation.
Gas Limits and Usage in Explorers
You can move on when:
- You can define gas as a resource unit abstraction.
- You can explain the difference between gas limit and gas used.
- You can explain why fee estimation is inherently uncertain under congestion.
Stage 2
Fee Markets & Congestion
How does the network decide whose transaction gets included first?
Understand fee markets as allocation mechanisms for scarce block space.
Core
Fee Market
Congestion, Volatility, and Spikes
Supporting (intuition)
Optional intuition and mental models.
Base Fee vs Tip (EIP-1559-style)
Reference (how to observe the system)
Optional verification via explorers, clients, wallets, and documentation.
Mempool Competition Snapshots (Conceptual)
You can move on when:
- You can explain transaction ranking under congestion.
- You can explain why fees fluctuate and spike.
- You can explain base fee vs tip at a mechanism level (not chain-specific).
Stage 3
Rewards & Security Budgets
Who gets paid, and why does that secure the network?
See fees + rewards as a security budget, not just “validator income”.
Core
Block Rewards
Inflation vs Fees: Who Pays for Security?
Supporting (intuition)
Optional intuition and mental models.
Validator Economics
Reference (how to observe the system)
Optional verification via explorers, clients, wallets, and documentation.
Reward Schedules (Conceptual)
You can move on when:
- You can explain block rewards and why they exist.
- You can explain issuance-funded vs usage-funded security.
- You can describe how costs/revenues affect participation incentives.
Stage 4
Ordering & MEV (High-Level)
Why does transaction ordering create extra value?
Treat MEV as a consequence of incentives, not a hack.
Important
This stage explains a system effect. It does not teach exploits or tactics.
Core
MEV Basics
Supporting (intuition)
Optional intuition and mental models.
Sandwich Attacks
Mitigations and Fair Ordering Ideas
Reference (how to observe the system)
Optional verification via explorers, clients, wallets, and documentation.
Common MEV Examples (Conceptual)
You can move on when:
- You can define MEV as value from inclusion/ordering choices.
- You understand this stage does not teach exploit tactics.
- You can name the category of harms and high-level mitigation goals.
Stage 5
Design Trade-offs & Misalignments
What behaviors do incentives create — intentionally or not?
Show how incentives shape UX, decentralization, and security trade-offs.
Core
Incentive Misalignment Examples
Supporting (intuition)
Optional intuition and mental models.
Throughput vs Decentralization
Who Bears Costs? Users vs Validators
Reference (how to observe the system)
Optional verification via explorers, clients, wallets, and documentation.
Real-world Incentive Failures (Conceptual)
You can move on when:
- You can give an example of incentive misalignment.
- You can connect throughput vs decentralization to incentives and costs.
- You can explain who bears costs (users vs producers/validators).
Stage 6
Boundaries & Next Modules
What do incentives affect next?
Close before protocol economics/advanced MEV, then bridge to scaling and deeper security topics.
Hard stop (covered later)
- Protocol-specific economics
- Advanced MEV tactics
- Scaling optimizations
Leads naturally to
- Scaling & Layer 2
- Security & MEV (advanced)
- Protocol Economics (advanced)
Supporting (intuition)
Optional intuition and mental models.
Mempools and Transaction Propagation
Consensus and Validator Selection
Execution and State Growth
Completion checklist
If you can answer these, you have the module’s mental model.
- Why do transactions cost money in an open blockchain network?
- What is gas and what resources does it represent?
- How does a fee market allocate scarce block space under congestion?
- What is a security budget and who pays for it (issuance vs fees)?
- Why does ordering create MEV, and why is it an incentives consequence?
- What are common incentive misalignments and trade-offs?
FAQ
Key concepts
Back to Blockchain Basics
Blockchain Basics hub
Next module
Smart Contracts & Execution Layer
How execution runs on-chain and updates shared state.