Written by Ryan Watkins
Introduction
The block reward refers to the newly minted coins and transaction fees awarded to the creator of a new block. The block reward is distributed through a special transaction (also the first transaction in a new block) that both creates new coins and distributes transaction fees from the preceding block to the miner of the new block.
From both a security and economic standpoint, the block reward is the centerpiece of the game theoretic underpinnings of a blockchain. Block rewards are used to incentivize participants to contribute economic resources to support and secure the network, in addition to serving as a mechanism for putting new supply into circulation as there is no central authority to issue them.
In the Bitcoin network, the block reward is distributed about every 10 minutes, when a block of transactions is solved by miners and added to the Bitcoin blockchain. The mining process and the corresponding block reward are analogous to gold miners expending resources to add gold into circulation. In the case of Bitcoin, miners expend computing power and electricity to support the network and, in the process, distribute new bitcoins into circulation. However, new coins will not be generated forever. The reward miner’s receive for mining Bitcoin gets reduced according to a predetermined schedule by 50% every 210,000 blocks, which occurs every four years. Eventually, once a predetermined number of coins have been created, in Bitcoin’s case, 21 million, the network will no longer issue new bitcoins and will be supported entirely by transaction fees.
Suggested Reading
Block Rewardby Caner Taçoğlu
What is a Coinbase Transaction?by Jerome Morrow
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