Understanding Block Subsidy and Bitcoin Mining Rewards

When miners successfully confirm a new block on the Bitcoin network, they receive a block reward—but what exactly makes up this incentive? The answer lies in understanding two key components: the block subsidy and transaction fees.

What Comprises a Block Reward?

The block reward is split between newly minted cryptocurrency (the block subsidy) and fees collected from transactions included in that block. However, since the block subsidy historically dominated miners’ earnings, the two terms often get used interchangeably in casual conversation. In reality, when people mention “block reward,” they’re typically referring to the block subsidy specifically.

The Halving Schedule: How Bitcoin’s Block Subsidy Evolved

Bitcoin’s monetary policy is unique: the block subsidy doesn’t remain constant. Starting at 50 BTC, this reward gets cut in half every 210,000 blocks—roughly every four years. This scheduled reduction event is known as Bitcoin halving.

Here’s the historical progression:

• 2012: Block subsidy reduced to 25 BTC
• 2016: Further cut to 12.5 BTC
• 2020: Halved again to 6.25 BTC
• 2024: Most recently reduced to 3.125 BTC

The Mechanism Behind New Bitcoin Creation

New bitcoins don’t appear randomly—they’re systematically introduced through a special transaction type called a coinbase transaction. Typically placed as the first transaction in any new block, the coinbase transaction is how the protocol ensures a steady, predictable supply of new bitcoins entering circulation.

This elegant system ties miner incentives directly to network security while maintaining Bitcoin’s predetermined supply schedule.