What Is The Block Reward?
The block reward is how Bitcoin miners are compensated for mining and adding blocks of transactions to the blockchainWhat Is The Blockchain? The blockchain is the public record of bitcoin transactions, which are organized into blocks that are all chronologically linked to one another. Because every block is.... The block reward is made up of two parts: the block subsidyWhat Is The Block Subsidy? The Block Subsidy is the amount of new bitcoin that is created in each block and awarded to the miner that finds the block. The... and transaction fees commonly known as miner fees.
The block reward fluctuates all the time. The block subsidy is fixed and predictable but transaction fees fluctuate based on the demand for limited on-chain block space.
Coinbase Transaction
A coinbase transaction is the first transaction found in every bitcoin block. It is referred to as a “coinbase” because, much like the way mining gold requires a “base” or starting point, this transaction marks the beginning of new coins being generated. The block subsidy, which consists of the newly created coins, along with all of the accumulated miner fees for that block, goes into this transaction, making it unique. This transaction doesn’t have the typical inputsWhat Are Inputs & Outputs? Every bitcoin transaction is made up of inputs & outputs. Inputs are bitcoin being sent and outputs are bitcoin being received. Until bitcoin is sent... that are usually found in standard transactions and has only one output.
It’s important to note that the coinbase transaction is not related to the San Francisco based altcoinWhat Is An Altcoin? An altcoin, short for alternative coin, is any cryptocurrency that is not Bitcoin and refers to the hundreds of other digital currencies that have emerged in... exchange named “Coinbase”.
You can view the block reward in the first transaction in every block. Here in this transaction 5b130edc8f392c17dc6aff22187d232c3997db0c33790c8a91c202659936d051 the reward for mining this particular block is 6.31084793 bitcoin.
The Block Subsidy
The Block Subsidy is the generation of new bitcoin in every block and the primary means of compensating Bitcoin miners for proof of workWhat Is Proof Of Work? Proof Of Work, often abbreviated as PoW, is both the method for achieving consensus across the entire Bitcoin network as well as a piece of....
When Bitcoin first began, the block subsidy was 50 bitcoin per block but the subsidy is reduced by 50% every 210,000 blocks in an event commonly known as The Halving.
With the total supply of bitcoin hard-capped at 21,000,000 bitcoin, the block subsidy will eventually come to an end sometime around 2140 when all of the bitcoin has been mined.
Once the final satsWhat Is A Satoshi? A Satoshi (sat or sats for short) is the smallest unit of a bitcoin. 1 Satoshi is a hundred millionth of a BTC (1 sat =... have been mined, transaction fees will become 100% of the block reward and the only compensation for Bitcoin miners.
Transaction Fees
Transaction fees are the financial incentive for bitcoin miners to confirm transactions and add them to the blockchain. When transactions are initially sent, they wait in the MemPoolWhat Is The MemPool? The MemPool, short for memory pool, is a short-term database of unconfirmed transactions that is kept by each node. Although the term "MemPool" is frequently used,... until a miner decides to add them to a block. Since miners have a financial incentive to maximize revenue, transactions with the highest fee rateWhat Is The Fee Rate? The fee rate for a Bitcoin transaction is the number of sats a sender is willing to pay for each byte of on-chain transaction data.... are prioritized and transactions with a lower fee will be added as soon as block space becomes more available.
Transaction fees perform several functions. They prevent “spam” transactions by introducing a cost to use the network. Fees prioritize transactions by giving the sender the ability to set their own fee and wait for it to be added by the miners. Fees are also what makes bitcoin transactions censorship resistant because the sender of any given transaction can increase the fee until a miner adds it to a block.
While the block subsidy is currently the majority of the block reward, transaction fees will become the dominant form of compensation for bitcoin miners in the future.
Increasing Fees and Decreasing Subsidy
As the block subsidy decreases with each halving, transaction fees will slowly become the majority of the block reward and the primary means of rewarding miners for adding blocks of transactions to the blockchain.
As soon as the final sats are mined sometime in 2140, the block subsidy will come to an end and transaction fees will account for 100% of the block reward.