Crypto miners are very important. They are responsible for creating new crypto tokens, validating transactions on the blockchain, and much more using sophisticated software and hardware.
However, they don’t do it for free, because there is an incentive: block rewards. So, what is a block reward, and why is it important in cryptocurrency?
What is a block reward?
Transactions on a crypto network exist in “blocks” and are linked together in “chains” (hence, “blockchain”). To prevent fraudulent transactions on the network, miners use highly sophisticated computers to thoroughly check all transactions in a block to ensure they are valid.
The crypto network rewards them for their work through block rewards in the form of native crypto tokens. So, for example, when cryptocurrency miners on the bitcoin network successfully mine a block, they are rewarded in bitcoin tokens.
How do block rewards work?
Whoever is the first to hash the data block, solve the complex puzzle, and get the answer right wins the block reward. However, many miners can form a mining pool to mine faster, even if the block reward per individual is lower. Note that the mining difficulty of a cryptocurrency determines the mining duration and energy required.
Blockchain networks achieve two things through the block reward system. One is that the network is protected from fraudulent transactions called double spending. The second is that new tokens are circulated after a block is successfully mined. Block rewards vary from network to network, meaning that the rewards for mining bitcoin differ from other proofs of work (PoWs) for mining crypto.
Top 5 Blockchain Block Reward Systems
Every cryptocurrency network has a block reward system, but not every cryptocurrency uses mining to deliver those block rewards. However, the block rewards you receive when you mine and the timing of the halving (a preprogrammed event where rewards are cut in half after mining a specific number of blocks) vary across crypto networks.
Here are the block reward systems for some of the top cryptos.
1. Bitcoin
Miners on bitcoin earn 6.25 BTC for every block they successfully mine. Bitcoin halves its block reward every 210,000 blocks – roughly every four years. The next bitcoin halving event, where the reward will drop to 3.125, will likely occur in 2025 at block 840,000.
In addition to block rewards, bitcoin miners are also paid transaction fees for transactions in a block. As block rewards decrease, these transaction fees will become a larger percentage of mining rewards.
2. Dog Coin
When miners hold a block of transactions on the Dogecoin ecosystem, they receive 10,000 DOGE plus the transaction fees associated with the block. However, these transaction fees are usually much lower than block rewards; Typically, transaction fees are less than 1% of the total rewards earned by miners.
Initially, Dogecoin halved its mining rewards after every 100,000 successfully hashed blocks. However, after the last halving event in 2015, the blockchain suspended halving events.
Prior to this suspension, Charlie Lee, the creator of Dogecoin, proposed a Scrypt algorithm that would allow Litecoin or other Scrypt coins to be used in Dogecoin mining. This proposal, implemented in 2015, was designed to increase the overall hash rate and mining profitability of Dogecoin. Furthermore, because Litecoin and other scrypt coin miners can contribute to the Dogecoin network, they can confirm blocks faster, and Dogecoin has an unlimited supply of DOGE tokens.
3. Litecoin
Litecoin miners earn 12.5 LTC tokens per block. They also earn transaction fees per block.
Litecoin’s reward per block is halved every 840,000 blocks – four times that of bitcoin. Litecoin’s next halving event is expected to occur in August 2023 (around block 2,520,000), and will see the block reward cut to 6.25 LTC per block. In contrast to bitcoin’s total supply of 21 million BTC tokens, litecoin has a total supply of 84 million – four times more than bitcoin.
4. Monero
Monero P2Pool enables pool and solo mining. All mining methods receive a constant block reward of 0.6% XMR and user transaction fees per block.
Unlike other PoW blockchains, Monero maintains a constant block reward, so miners do not have to rely on transaction fees as their sole source of rewards.
5. Ravencoin
As a bitcoin fork, Ravencoin shares many similarities with bitcoin. Like Bitcoin’s 21 million coin supply, RavenCoin has a total supply of 21 billion tokens. Similarly, instead of halving every 210,000 blocks, Ravencoin’s halving event will happen every 2,100,000 blocks.
The blockchain’s first halving event occurred on January 11, 2022, and the reward block dropped from 5,000 (similar to bitcoin’s initial block reward of 50 BTC) to 2,500 RVN (Ravenco).