The small fees paid to process instructions on the Solana blockchain are known as "transaction fees".
As each transaction (which contains one or more instructions) is sent through the network, it gets processed by the current leader validation-client. Once confirmed as a global state transaction, this transaction fee is paid to the network to help support the economic design of the Solana blockchain.
NOTE: Transaction fees are different from account rent! While transaction fees are paid to process instructions on the Solana network, rent is paid to store data on the blockchain.
Why pay transaction fees?
Transaction fees offer many benefits in the Solana economic design described below. Mainly:
- they provide compensation to the validator network for the CPU/GPU resources necessary to process transactions,
- reduce network spam by introducing real cost to transactions,
- and provide potential long-term economic stability of the network through a protocol-captured minimum fee amount per transaction
NOTE: Network consensus votes are sent as normal system transfers, which means that validators pay transaction fees to participate in consensus.
Basic economic design
Many current blockchain economies (e.g. Bitcoin, Ethereum), rely on protocol-based rewards to support the economy in the short term. And when the protocol derived rewards expire, predict that the revenue generated through transaction fees will support the economy in the long term.
In an attempt to create a sustainable economy on Solana through protocol-based rewards and transaction fees:
- a fixed portion (initially 50%) of each transaction fee is burned (aka destroyed),
- with the remaining fee going to the current leader processing the transaction.
Why burn some fees?
As mentioned above, a fixed proportion of each transaction fee is burned (aka destroyed). The intent of this design is to retain leader incentive to include as many transactions as possible within the leader-slot time. While still providing an inflation limiting mechanism that protects against "tax evasion" attacks (i.e. side-channel fee payments).
Burnt fees can also help prevent malicious validators from censoring transactions by being considered in fork selection.
Example of an attack:
In the case of a Proof of History (PoH) fork with a malicious, censoring leader:
- due to the fees lost from censoring, we would expect the total fees destroyed to be less than a comparable honest fork
- if the censoring leader is to compensate for these lost protocol fees, they would have to replace the burnt fees on their fork themselves
- thus potentially reducing the incentive to censor in the first place
Calculating transaction fees
Transactions fees are calculated based on two main parts:
- a statically set base fee per signature, and
- the computational resources used during the transaction, measured in "compute units"
Since each transaction may require a different amount of computational resources, they are alloted a maximum number of compute units per transaction known as the "compute budget".
The execution of each instruction within a transactions consumes a different number of compute units. After the maximum number of computer units has been consumed (aka compute budget exhaustion), the runtime will halt the transaction and return an error. Resulting in a failed transaction.
Recently, Solana has introduced an optional fee called the "prioritization fee". This additional fee can be paid to help boost how a transaction is prioritized against others, resulting in faster transaction execution times.
The prioritization fee is calculated by multiplying the requested maximum compute units by the compute-unit price (specified in increments of 0.000001 lamports per compute unit) rounded up to the nearest lamport.
You can read more about the compute budget instruction here.