Clear DefinitionsBlock Subsidy
1 min read
Pronunciation
[blok suhb-si-dee]
Analogy
Imagine a government offering a fixed reward (the block subsidy) to any construction company that successfully builds a new, approved section of a public highway (a new block). This reward is 'new money' printed by the government (newly created coins) specifically for this purpose, encouraging companies to do the construction work.
Definition
The amount of newly created cryptocurrency that is awarded to the miner or validator who successfully creates a new valid block and adds it to the blockchain. This subsidy is a key incentive for participating in network consensus and security.
Key Points Intro
The block subsidy is the primary mechanism for introducing new coins into circulation in many cryptocurrencies.
Key Points
Newly minted coins awarded to the creator of a valid block.
Part of the total block reward, which also includes transaction fees from the transactions in the block.
Decreases over time in some cryptocurrencies (e.g., through halvings in Bitcoin) to control inflation.
A major economic incentive for miners (in PoW) or validators (in PoS).
Example
In Bitcoin, the initial block subsidy was 50 BTC. After successive halvings, it is currently 6.25 BTC per block (as of early 2024). This subsidy, plus transaction fees, makes up the total block reward.
Technical Deep Dive
The block subsidy is defined by the blockchain's protocol rules. For PoW coins, the first transaction in a block (the coinbase transaction) allows the miner to claim the block subsidy plus transaction fees. For PoS coins, the protocol distributes rewards (which can include a block subsidy component) to validators based on their participation and stake. As the subsidy diminishes over time in systems like Bitcoin, transaction fees are expected to become the primary source of miner revenue.
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