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What Are Block Rewards?

Last updated 16th Feb 2023

Crypto miners are eligible for block rewards, and they receive them for their effort in maintaining the blockchain network. Miners verify valid transactions and get compensation after they successfully create a new block and add them to the blockchain network. The reward is a certain amount of the token mined.

It’s a simple concept, but if you’d like to learn more, the guide below explains the specifics. We cover how block rewards work, why they are important, and what’s their future!

Block Rewards – An Overview

The entire crypto market relies on blockchain technology. It’s a network of blocks containing various encrypted information. That data includes a transaction and a hash used to identify it. Blockchains are nothing but crypto transaction ledgers. Once a block is created, no one can adjust or erase a record, which maximizes network security.

To add a block into the network, such as Bitcoin, it’s necessary for someone to verify the transactions. Miners do this by running software capable of solving complex mathematical problems to validate transfers. Once the new block is created, the miners receive tokens as a prize.

What Do You Get as a Block Reward?

After you generate a new block, the reward received might include the following components:

  • Subsidy. You generate new coins along with the block created. A portion of those tokens is given to miners as a sign of appreciation. It’s the majority of the reward.

  • Transfer fees. Transactions usually come with a charge called the “miner’s fee.” These make up a smaller part of the reward.

Who’s Eligible for a Block Reward?

Anyone can become a crypto miner, but you need an adequate PC setup in case of a Proof-of-Work-based blockchain network like Bitcoin. The initial investment isn’t small because you need strong equipment if you want to mine at decent speeds and don’t forget that computers use electricity, so that’s a recurring fee to calculate when deciding if mining is profitable. Most users who intend to pursue block rewards purchase special rigs optimized for crypto mining.

In a Proof-of-Stake based blockchain network, when a block of transactions is ready to be processed, the protocol will choose a validator node to review the block. The validator checks if the transactions in the block are accurate. If so, they add the block to the blockchain and receive crypto rewards for their contribution.

How to Calculate Block Rewards?

The financial incentive for miners to create blocks and protect the blockchain network is the block reward. Block calculations are based on a variety of factors. These are what they are:

  • Token supply. You’ll receive the native coin of the used network. Cryptocurrency values depend on many factors, but more tokens received mean a higher-valued reward.

  • Generation time. How long does it take to mine an entire block or the entire token supply? Some platforms, such as BTC, use a halving method, which decreases the reward as more tokens become available in the market.

  • Transaction fees. The general rule is that fees are higher if the network is more congested.

Why Block Rewards Are Important?

Block rewards are an integral blockchain technology component. Some of the factors supporting the significance of block rewards include the ones listed below:

Enhancing decentralization: Blockchains are by their nature very decentralized. There’s no central authority confirming the transaction. Instead, all the nodes contribute to the network’s security and workable economic system.

That’s why the job of validating transfers is solely up to miners. And the best way to motivate miners is to offer an incentive. By ensuring rewards, the blockchain is more attractive to miners. That ensures transactions will actually get validated while guaranteeing decentralization.

Using the new coins: Block Rewards are also utilized when the market needs new money. The created coins can be utilized on other exchanges.

To secure the network: Users get rewards so that they can secure the blocks.

Financial benefit: Financial independence is provided to the miners as they get incentives that can be used for making exchanges.

Should You Mine Crypto for Block Rewards?

It’s your call, but it can be a way to earn crypto without purchasing it at digital exchanges. Some investors choose to mine coins and then sell them for profit.

While the financial benefit can be considerable, don’t forget there are expenses. These include electricity bills, relevant taxes, and other fees.

The incentives vary on the project. You can try other ways of earning cryptos, such as play-to-earn or move-to-earn models. They might be an alternative way to enter the market with a smaller initial investment.

What’s the Future of Block Rewards?

The future doesn’t look so bright for Bitcoin miners. During the creation of Bitcoin, its maximum supply was placed at 21 million tokens. Once miners create 210,000 blocks, the reward size lowers by 50%.

In 2009, mining a single block awarded 50BTC to respective miners. But over a decade later, that reward dropped to 6.25 BTC. And most people don’t mine a single block alone, but they share the prize with many others. As Bitcoin gets closer to its maximum supply, the block reward will get closer to zero.

Along the way, transaction fees are expected to become the primary incentive for miners. So, even if the block rewards become less popular, earning incentives in the crypto world will continue to live in different forms.


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Aneeca Younas

Aneeca Younas