How Block Rewards Incentivize Miners for Network Security Operations

What is Block Reward?

When a miner successfully packages and verifies a new Block, the network awards them with a Block Reward. This reward consists of two parts: the newly generated cryptocurrency (Block Subsidy) and the transaction fees for all transactions within that Block. The newly generated currency makes up the majority, which is why many people often confuse Block Subsidy with Block Reward.

Evolution of Bitcoin Block Reward

Taking Bitcoin as an example, the initial Block Reward was 50 BTC. In order to control inflation, the Bitcoin protocol established a key mechanism - Halving. Every time the network produces 210,000 Blocks (approximately every 4 years), the Block Reward will automatically be halved. This has led to a series of changes:

• 2012: 50 BTC dropped to 25 BTC
• 2016: 25 BTC reduced to 12.5 BTC
• 2020: Block Reward dropped from 12.5 BTC to 6.25 BTC

The Technical Source of Block Rewards

Block subsidies are generated through a special transaction mechanism known as Coinbase transactions. This transaction is usually the first transaction in each block, and its uniqueness lies in the fact that it has no input source—the currency is essentially created out of “nothing.” This design allows new coins to enter circulation while incentivizing miners to continue maintaining the security of the network.