What is Block Reward in Crypto?
In the world of cryptocurrency, miners or validators are rewarded tokens for confirming or validating transactions on the blockchain. In the case of Bitcoin, the lucky miner (typically, a mining pool) gets 6.25 BTC for confirming a batch of BTC transactions and adding them on the network.
What is a Block Reward?
Block Reward is a reward given to a miner or validator for successfully adding an entirely new block of transactions to the blockchain.
In proof of work systems like Bitcoin or Litecoin, block rewards is distributed in a process called mining. It involves solving complex mathematical puzzles and broadcasting it to others for confirmation. If validated, the block is added to the blockchain and the lucky miner receives a block reward.
The process of solving such a complex mathematical puzzle was intentional in Bitcoin. As stated clearly in Bitcoin’s whitepaper, written by Satoshi, a miner who has successfully solved such a puzzle is rewarded brand new coin as a reward.
Solving such a puzzle requires massive electrical power and substantial computational resources. Besides, a lot of investment goes into owning a rig for mining. Although mining can be a lucrative venture, profitability will tend to taper in the coming years as more Bitcoin miners pour in, forcing difficulty to new highs. Bitcoin’s max supply is fixed at 21 million.
What Happens During the Process of Bitcoin Mining?
The process of Bitcoin mining involves the activity of confirming BTC transactions. Miners collate transactions into blocks before hashing them. Once confirmed by other miners to be true, they are added to the blockchain and the reward automatically distributed to the miner who was the first to confirm the first bunch of transactions to be true.
To understand the modus operandi of mining bitcoin, one could juxtapose it with gold mining as the two share similar characteristics. While both involve intense energy, they also have immense potentials that reward the miners with what they mine.
What is the current Bitcoin block reward?
In the fourth epoch, the reward miners get for successfully validating a block is 6.25 BTC. This wasn’t the case in the beginning. In 2009, Bitcoin block reward stood at 50 BTC. The reason why the reward decreases is due to a protocol-level condition set that demand that block reward automatically reduce by half.
After successfully adding 210,000 blocks (roughly four years) to the network, a halving usually occurs. The halving is a measure put in place to ensure the supply of Bitcoin at a steady pace until it reaches its maximum supply of 21 million, which many expect to happen in the year 2140.
However, blockchain experts have a consensus that mining BTC will eventually be unprofitable even before 2140 due to low coin rewards that might not much the gear investment. The only incentive left for them, at that time, will be a reward of fractional transaction fees per block. Because of this concern, it will be highly likely that Bitcoin mining will be centralized with well-capitalized firms taking over, leaving users watching form the sidelines.
