What is a Block Reward?
A block reward is the compensation provided to miners or validators when they successfully add a new block of transactions to a blockchain.
The reward consists of newly minted cryptocurrency and, in some cases, transaction fees collected from network users. This mechanism helps distribute new coins into circulation while incentivizing network security and transaction verification.
How do Block Rewards work?
The process of earning block rewards varies depending on the consensus mechanism:
Proof-of-Work (PoW): Miners compete to solve complex mathematical puzzles. The first to find a valid solution adds the block and receives the reward. Example: Bitcoin mining.
Proof-of-Stake (PoS): Validators are selected based on the amount of cryptocurrency staked. The chosen validator adds the block and earns the reward. Example: Ethereum 2.0 staking.
Block Rewards in Different Blockchains
Block reward amounts vary by blockchain and decrease over time due to pre-programmed rules like halvings or reductions. Some key examples include:
The role of Block Rewards in Blockchain Security
Block rewards play a crucial role in maintaining blockchain networks:
Encouraging Participation: Miners and validators receive incentives to contribute computing power or stake funds.
Securing the Network: More participants increase security, making it harder for bad actors to manipulate the blockchain.
Issuing New Coins: Many cryptocurrencies introduce new tokens through block rewards until reaching a maximum supply.
Block Reward Reductions and Halving Events
Many blockchains reduce block rewards over time to control inflation and mimic the scarcity of assets like gold.
Bitcoin Halving is a well-known example, where the Bitcoin block reward halves approximately every four years. This reduction impacts miners’ profitability, supply issuance, and market price dynamics
