Are you a validator/staker/miner? The term of address depends upon the concerned blockchain’s consensus mechanism. This mechanism could be proof-of-work or proof-of stake.
What do you do?
You verify the authenticity of transactions taking place on a blockchain digital wallets protocol. As a result, you become eligible to receive block rewards.
An Introduction to Block Rewards
Block rewards encourage people to link up with a network. They are financial incentives to lure volunteer users like you. All that you must do is to hunt for new blocks. When you find them, use them to secure the specific network. You must also make sure that the network continues to function as before.
Networks need you, for they are decentralized. There is no central administrator, who can watch over all the various digital currencies floating around in the virtual world.
When are block rewards issued?
You must have successfully mined/discovered or staked/proposed, new blocks. Then, you gain access to newly-minted coins. Furthermore, the blockchains put these new coins into circulation.
Sometimes, the reward is fixed. In other words, a fixed number of tokens are handed over as block rewards. It is akin to receiving a fixed salary for work completed.
However, over time, the number may decrease or increase. It all depends upon the concerned blockchain. To illustrate, Bitcoin halves the number of tokens, once in four years. In figures, the number of blocks discovered/proposed in four years, equals 210,000.Another aspect for the increase/decrease, is the variation in projects. Therefore, you must be prepared for this too.
Transaction Charges and Block Rewards are Different
Both are not the same, despite coming under the umbrella of financial incentives.
To illustrate, as a validator/staker/miner, you gain block rewards. You also receive fees for facilitating cryptocurrency transaction in the new block. In other words, you gain dual bonuses. However, there must come a time when discoveries/proposals must stop. Then, your only source of income will be transaction fees.
Then again, your block reward tokens may not always match the tokens utilized for transactions on the concerned blockchain. An example is Stablecoins.
What happens is that blockchain protocols must maintain a stable exchange rate for cryptocurrencies against fiat currencies. Towards this end, therefore, they control the supply of tokens. In other words, you may receive other native tokens. For instance, the Terra network hands over LUNA tokens, which are free floating in nature. The network does not hand over Terra USD.
Bitcoin Block Rewards
They refer to the prizes that miners may win! The prizes are in the form of new Bitcoins. Therefore, if you are a Bitcoin miner, you will have to resolve a mathematical problem. This problem tends to be complex. After resolving it, you must set up a new block. This new block must display verified transactions related to Bitcoin.
You may take recourse to a network of computers to solve the mathematics problem. You may even take the assistance of multiple networks of computers. Similarly, whenever you create a new block, ensure that all the other miners verify it too. They are your competitors, but must be in the game.
Once everything is resolved to satisfaction, a new mathematical problem comes to the fore.
The Bitcoin blockchain is akin to a decentralized bank ledger. It is impossible to alter it. Therefore, vigilant miners are in demand. They must keep track of all transactions, and enter everything into the ledger. Furthermore, the ledger must always remain up-to-date. It is not easy, as you will find out if you are a miner. Therefore, you gain rewards in the form of block rewards (majorly) and transaction fees (minorly).
New Bitcoins must enter the cryptocurrency landscape consistently, if the blockchain must keep operating continually. Therefore, the mathematical problem undergoes adjustment twice a week. It ensures that there is an output of a block of transactions almost every 10 minutes.
Ethereum’s Block Rewards
Even Ethereum offers block rewards to validators. Here, the reward takes the form of digital tokens. Each token is an Ether.
As for transaction charges, they carry a special label – gas fees.
Ethereum mining takes place very rapidly. It measures in seconds. Therefore, the Ethereum blockchain surpasses the Bitcoin one, regarding the number of new blocks.