After five years of active development, Cardano is now a functional blockchain following the activation of smart contracting in late September 2021.
The completion of the Alonzo Upgrade officially marked the close of the third phase and the beginning of platform enhancement in Basho.
Unlike Ethereum, Cardano uses an EUTxO system where transaction ordering is implicit. The success or failure depends on the transaction and inputs, not anything outside the blockchain.
As such, developers planning to deploy on Cardano can determine how much they will pay with a guarantee that they won’t pay a fee if the transaction fails. The other added advantage is the predictability and assurance of low fixed fees.
Over and above everything, Cardano is a public smart contracting platform — the most decentralized Proof-of-Stake network with over 3.1k staking pools as of early February 2022. The number would only grow as the network’s ecosystem expands. Staking pools are where users can delegate their ADA, securing the network. Staking pools help in network decentralization, ensuring security, and in transaction confirmation per slot in every Epoch when given a chance.
As an incentivizing network, fees are paid for every coin transfer or smart contract deployment. Depending on network activity, on-chain fees vary in account-style networks. However, in Cardano, fees are fixed and refreshingly predictable.
The Cardano fee structure is simple. The on-chain fees paid in ADA are fixed depending on pre-set protocol parameters and not, in any way, influenced by varying network conditions like congestion. These parameters are adjusted by Cardano’s update system based on changes related to factors such as the network’s transaction volume and ADA valuation.
The minimal fee paid in Cardano is per the formula:
a * size(x) + b,
Where:
In early February, IOHK released a Plutus Fee Estimator in testnet for developers who want to draw maximum benefits from Cardano’s functionality, protocol quality, security, and ADA liquidity. These are core factors that help determine the overall fee pricing in any public network.
The determinism in Cardano is a significant factor in fee pricing. In Cardano, transactions and scripts are validated off-chain, therefore, helping a user/developer determine whether they are valid before posting them on-chain and paying a fee. Fees are not paid for failed transactions. Since developers can know whether their scripts or transactions are valid or not in advance, they can save resources.
This update is important considering the activation of smart contracting, allowing for NFT operations and deployment of DeFi dApps, which would massively affect pricing. Plutus smart contracts are split with some parts running on-chain with the other off-chain. These off-chain and on-chain codes are written in Haskell. Therefore, pricing smart contracts depending on transactions would depend on fixed costs which also relies on the pricing of spent resources — UTxO size and computing resources used.
Proper pricing is necessary to ensure fair compensation of stake pool operators who have to pay more for running their servers after the Alonzo Upgrade while also factoring in redundancies as the network grows. That’s besides management time and maintenance, which costs money.
The beauty in Cardano’s architecture is that parameters can be changed depending on many other factors, such as the spot price of ADA. The Plutus Fee Estimator uses the transaction size, the number of transaction or script’s computation time, and the number of memory units. From these details, the fee estimator would serve as a portal for price benchmarking and comparison using real-world Plutus transactions for fee estimation. Aside from fee estimation, developers can use the tool to track the cost of optimization.
Genius Yield is building a non-custodial order-book DEX heavily reliant on Plutus smart contracts to power the platform’s distinguishing features like smart swaps and the yield optimizer. While the Genius DEX does not charge a fee for placing an order except for the standard on-chain fees, liquidity providers and users searching to automate their strategies would keep track of fees using the Plutus Fee Estimator, a reason why the announcement is massive for Genius Yield and the Cardano ecosystem.