In combination with Hashgraph consensus’ DDoS resilience, the Hedera fee model is designed to protect the network against Denial of Service attacks and the tragedy of the commons, by ensuring that the fee charged for a transaction reflects the bandwidth, processing, and storage burden that it places on the nodes of the network.

Fees on the Hedera network also serve to fund the network, as Hedera works to incentivize nodes through future rewards. Every transaction has a typical fee denominated in USD — this typical fee makes certain default assumptions about the above burden. If a particular transaction places more or less of a burden than the default, the fee will be higher or lower than typical.

As new services have been added (Hedera Consensus and Token Service), typical fees for those new transactions were stipulated. The list of transactions and their typical fees is available here and a fee estimator here.

Since open access of the Hedera mainnet, applications have been utilizing various transaction types; it’s been assessed by the Hedera team and members of the Governing Council whether fees were adequately reflecting demand for network resources consumed. One usage pattern observed were occasional volume spikes for transactions that were creating Hedera mainnet accounts. Our investigations determined that these were not an attack against Hedera, rather someone was utilizing services that offer free account creation and that weren’t themselves enforcing throttling or filtering.

Nevertheless, the network does bear the storage burden of persisting these accounts (until such time that they will expire for lack of an HBAR balance). Accordingly, it was decided to raise the typical fee for creating an account from $0.01 (the fee since open access) to $0.05. It's believed that the new fee, in combination with the current network throttle of 2 create transactions per second, appropriately reflects the economics and need for network security for this transaction type.

The new fee of $0.05 is expected to take effect on April 22nd for the Hedera testnet and May 6th for the Hedera mainnet via distribution of the updated fee schedule to the network. The fees for other transaction types are unchanged. Clients may need to adjust the maximum transaction fee on their HAPI CryptoCreate transactions to ensure that such transactions are not rejected with an insufficient fee error. As always, there is no risk of overpayment when the maximum fee is too high, so the maximum fee can be safely raised.

Decision making for fee changes today

The process for coming to the above decision is illustrative of how fee policy, in general, is defined. The process was as follows:

1. Hedera staff identified the pattern of surges in account creation transactions and, after investigation, concluded that a price increase might be appropriate.
   
   
2. On a bi-weekly call of the Hedera Governing Council Treasury Management and Token Economics Committee (CoinCom), staff proposed that the typical fee for account creation be raised from $0.01 to $0.05 and explained the rationale. The pros and cons of the decision and potential consequences were discussed. CoinCom committee voted to endorse the proposal and made a recommendation to that effect.
   
   
3. On the March 2021 call of the full Council, the CoinCom recommendation was voted on and approved by the Council. The minutes for that meeting recorded the decision. As for all Council meetings, these minutes will be posted within 30 days of approval by the Council, typically a few weeks following the subsequent Council meeting.
   
   1. Hedera staff were directed to implement the price increase.
      
      
   2. Staff communicated the planned price increase to the Hedera Discord channel, and on the fee's documentation page - indicating the planned time frame for implementation.
      
      
   3. Staff generated a new fee schedule file that nodes use to calculate fees. The new fee schedule reflects the price increase.
      
      

Hedera Improvement Proposal (HIP) for fee changes

Hedera recognizes the importance of transparency and community input when it comes to updating the fee schedule. It's important to honor the commitment of low and predictable fees for everyone building and transacting on Hedera, and that the developer community has input in key network decisions.

Consequently, when introducing new transaction types and their associated fees, we plan to use the Hedera Improvement Proposal (HIP) process to notify the community and offer an opportunity and time to provide feedback on those fees before their implementation. An example of using HIP to notify the community of proposed fees for new transaction types can be found in the auto-renewal HIP-16. When the auto-renewal feature is enabled, entities in state will pay rent for their continued storage. HIP-16, describing the auto-renewal feature, lists the proposed rent rates for different entities.

Of course, using the HIP process for community feedback may not be appropriate for all fee-related decisions. For example, an extreme surge in usage, such as during an attack, would require prompt action to raise fees and so mitigate the attack.