It is safe to say that knowing what the term “block reward” means is essential for all crypto enthusiasts – read ahead to find out its definition!
What Is A Block Reward?
In a nutshell, a block reward is a set amount of cryptocurrency that is paid to a user who successfully adds a new block of transactions to the blockchain. It serves as an incentive for miners to devote their computing power and electricity to the validation of transactions and network maintenance.
What You Need To Know About Block Rewards
A block reward consists of two components:
- Block subsidy – the bigger part of the block reward that is made up of newly generated coins.
- Transaction fees – features all the fees paid by users for the inclusion of their transactions in a block.
Note that oftentimes when people in the crypto community mention a block reward, they tend to refer to the block subsidy without taking transaction fees into account.
The block reward definition is closely related to the term “halving”, which is the event when a block subsidy is reduced by half. It is a process built into the protocol of some cryptocurrencies that occurs at regular intervals to control the supply of coins and maintain the value of the currency.
For example, in the case of Bitcoin, the initial block subsidy was 50 BTC, but after the first halving, it was reduced to 25 BTC in 2012. Subsequent halvings have cut the block subsidy to 12.5 BTC in 2016, and to 6.25 BTC in 2020, as a means of ensuring that the total supply of Bitcoin remains limited and its value is maintained over time.
Bitcoin’s block subsidy is scheduled to eventually hit the zero mark around May 2140, but mining BTC is most likely to stop being profitable long before that.
