What is a Block Reward?

By Julia Cook
Published Jun 14, 2022 and updated Oct 14th, 2022

A block reward is the remuneration received by nodes that participate in verifying a blockchain protocol or transaction.

A block reward is used to incentivize miners to participate in the verification process. They are divided into two types: block subsidy and transaction fees. Block subsidies are the Bitcoin, altcoins or tokens  created upon the creation of a blockchain block, whereas the transaction fees are the fees incurred for processing a cryptocurrency transaction. The transaction fee is separate from the block subsidy, as the subsidy is only awarded to the mining node that successfully cracks the hashed code, whereas, the transaction fee is calculated at a specific rate and automatically awarded to the nodes involved in hashing the transaction.

These nodes are known as ‘validators’ and are generally awarded a percentage of the newly created cryptocurrency. These incentives are essential to the blockchain network for a few reasons. Firstly, the mining and verification processes require a great deal of processing power from the computer, so the incentives need to be in place to encourage users to provide this computing power. Next, transaction fees are used to authentic a data transfer, and also protect blockchains from spam attacks. A spam attack is when a user sends thousands of messages of other users and is a common tactic for phishing scams, DoS attacks or advertisers, among others. Therefore, charging fees will discourage such malicious or unsolicited activities, because during so would incur high fees. Additionally, on some blockchains, such as the Bitcoin blockchain, users can opt to pay higher fees, because the higher the fee, the higher the priority the transaction gets.