A block reward is the incentive paid to the miner or validator who successfully creates and adds a new block to a blockchain. It typically consists of two components: newly minted coins (the block subsidy) and transaction fees collected from the transactions included in that block.
In Bitcoin, the block subsidy started at 50 BTC per block in 2009 and is cut in half approximately every four years in an event known as the halving. This deflationary schedule means that the total supply of Bitcoin will never exceed 21 million coins. After each halving, miners earn fewer new coins, which historically has contributed to upward price pressure.
Block rewards serve several important functions:
- Security — they incentivize miners to dedicate hash rate to the network, making attacks prohibitively expensive.
- Distribution — newly minted coins enter circulation through block rewards, providing a fair and transparent distribution model.
- Network maintenance — transaction fees ensure that validators remain incentivized even after block subsidies diminish.
On Proof of Stake networks, the equivalent reward goes to validators who stake their tokens. The mechanics differ, but the purpose remains the same: compensating participants for securing the consensus mechanism.
As block subsidies decrease over time, transaction fees are expected to play an increasingly dominant role in sustaining network security, particularly on networks with capped token supplies.