Block reward is a term used in cryptocurrency, specifically in the context of blockchain networks that use a proof-of-work (PoW) consensus mechanism, such as Bitcoin.
In these networks, “miners” compete to add the next block to the blockchain by solving a computationally-intensive puzzle. The first miner who solves the puzzle gets the right to add the next block to the blockchain, and in return, they receive a certain amount of cryptocurrency. This amount is known as the “block reward.”
The block reward serves two purposes:
- Incentive: It motivates miners to participate in the network and validate transactions. Without such an incentive, it would be less attractive to dedicate computing power to maintain the network.
- Coin issuance: It’s the primary method by which new coins are generated in the network. For instance, in Bitcoin’s case, the block reward is the main way by which new bitcoins enter circulation.
It’s important to note that the amount of the block reward decreases over time in many cryptocurrencies. For example, Bitcoin undergoes a “halving” event approximately every four years, where the block reward is cut in half. This is a part of the protocol’s design to control inflation and ensure a predictable supply rate.