How Do Miners Earn Block Rewards?

The difficulty is an important aspect of Proof-of-Work (PoW) mining, which depends on the network’s hash rate. It is crucial to the mining process as it affects the miners’ pace to authenticate an encrypted block. So, how are miners rewarded for solving these complex puzzles? Well, that happens in the form of Block Rewards. So, what are these block rewards, and how can they be used? Let’s find out!

Explaining Block Rewards

Block rewards are new crypto units awarded to the miners in exchange for solving a complex maths problem and creating a new block of verified transactions. The miners do this using computer networks, and all the other contending miners validate each new block. 

Validators are collectively called stakers; however, they can also be called miners if they validate network transactions. People frequently refer to it as the block subsidy because the block reward is almost entirely made up of the block subsidy. In popular parlance, the phrase “block reward” does not refer to the fees.

Bitcoins were designed so that new Bitcoins could be generated at a consistent rate. To ensure a steady stream of fresh Bitcoins—roughly one batch of transactions every ten minutes—the difficulty of the maths problem is modified every two weeks.

What Is Bitcoin Mining?

Bitcoin Mining is the process of putting new bitcoins into existence. It is also a method by which  the network verifies the new transactions made—in fact it is a key aspect of the maintenance and development of the blockchain. The “mining” procedure is carried out with high-tech hardware that solves a difficult computational arithmetic problem. When the first machine solves the problem and obtains the next block of bitcoins, the process is restarted.

What Are The Main Costs Involved In Bitcoin Mining?

The three highest costs in Bitcoin mining are as follows:

  • Electricity
  • Network infrastructure
  • Mining infrastructure

What Are Mining Rewards?

The amount of Bitcoin that miners receive after successfully confirming the last transaction of a blockchain network’s transaction block is referred to as mining rewards. Each crypto has its reward structure, and there are many factors that determine how miners receive crypto rewards in different currencies over time – consider halving.

To pay the miners back for authenticating blockchain blocks in question, cryptos such as Bitcoin and Ethereum employ a similar approach. The winning miner will almost always claim a block reward by adding it in the first transaction on the block in question.

When a cryptographic transaction is spotted in a coin’s network, miners must require their nodes to solve difficult mathematical problems on their behalf to validate it.

After the verification process is completed, the new block is uploaded to the Bitcoin blockchain, adding it to the preceding block. Bitcoins are awarded to the miner who first solves the last transaction on the block.

What Are Block Rewards Utilised for ?

To protect the network and assure its continuous existence, protocols must provide incentives for distributed volunteer users to discover additional blocks. Since Bitcoins (BTC) and all other cryptos have no central administrator, block rewards are the major financial incentive for users to join the network.

Block rewards also function as an exclusive issuance scheme for putting newly produced currencies into circulation. Each successful validator who discovers (miner) or proposes (staker) new blocks receives one of these. These rewards might be fixed, in which case, the same number of tokens are provided as block rewards every time; or they can be progressive, in which case, the number of coins issued as block rewards decreases over time.

Miners gather blockchain data and combine it with valid transactions to form a block. The miner receives block rewards once a block of assembled transactions has been accepted and validated by other miners.

Take Away

Block rewards are essential for the sustainability of Bitcoins as they are the only way by which new Bitcoins can be created. In 2009, when Bitcoins were first introduced, each block reward used to be worth 50 Bitcoins. However, due to the reward halving principle, which splits the rewards in half—every 2,10,000 blocks—the value of block rewards were halved for the third time last year. The reward value is expected to go down to zero by the year 2140. But fortunately, that is a long time for our generation. If you want to get more insights into cryptos or blockchain, visit us and start trading at ZebPay, India’s oldest and most trusted crypto exchange.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Each investor must do his/her own research or seek independent advice if necessary before initiating any transactions in crypto products and NFTs. The views, thoughts, and opinions expressed in the article belong solely to the author, and not to ZebPay or the author’s employer or other groups or individuals. ZebPay shall not be held liable for any acts or omissions, or losses incurred by the investors. ZebPay has not received any compensation in cash or kind for the above article and the article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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