The mathematician working on the protocol's incentives explains the research and IOHK's design
Why do we need transaction fees?
There are two main reasons why transaction fees are needed for a cryptocurrency like Cardano:
People who run full Cardano nodes spend time, money and effort to run the protocol, for which they should be compensated and rewarded. In contrast to Bitcoin, where new currency is created with each mined block, in Cardano, transaction fees are the only source of income for participants in the protocol.
The second reason for transaction fees is the prevention of DDoS (Distributed Denial of Service) attacks. In a DDoS attack, an attacker tries to flood the network with dummy transactions, and if he has to pay a sufficiently high fee for each of those dummy transactions, this form of attack will become prohibitively expensive for him.
How do transaction fees work?
Whenever somebody wants to transfer an amount of Ada, some minimal fees are computed for that transaction. In order for the transaction to be valid, these minimal fees have to be included (although the sender is free to pay higher fees... Read more »