What is a block reward?

Block rewards play an integral role in the tokenomics of a cryptocurrency. Read on to learn what is a block reward and what role it plays in the running of blockchain protocols.

A block reward explained is pretty straightforward. It is a form of incentive given to network participants called miners or validators for verifying and adding new transactions to a blockchain.

Miners are responsible for discovering new blocks in the blockchain, and these rewards serve as a way to encourage them to participate in the network and secure it.

The network participants who verify transactions in proof of work (PoW) networks, like Bitcoin (BTC), are known as miners. In proof of stake (PoS) networks, they are referred to as validators or stakers.

In the Bitcoin ecosystem, the block reward incentivizes miners to direct computing power towards securing the Bitcoin network. This reward cuts down by half every four years or every 210,000 blocks in what is known as the Bitcoin halving. Miners also receive transaction fees as part of their reward for securing the integrity of the Bitcoin network.

The reduction of the block rewards is part of Bitcoin’s mechanism to slow down the introduction of new coins into the circulating supply, which helps to power the cryptocurrency’s deflationary monetary policy.

Types of block rewards

To better understand what is a block reward, you need to know that it mainly consists of two components: the block subsidy and the transaction fees. Block subsidies are the new tokens introduced to the blockchain and given to miners for their work in discovering new blocks, confirming transactions, and securing the blockchain. Transaction fees, on the other hand, are the money paid by users of a blockchain network to get their transactions validated.

Each cryptocurrency has its own validation process and reward system. Bitcoin, for example, as stated earlier, uses the proof of work system for its block rewards. It is the original consensus m

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Author: Julius Mutunkei

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