A block reward is a cryptocurrency that a validator (staker or miner) receives after successfully validating a new block. It comprises the block subsidy and the transaction fee.
Understanding the term
In Bitcoin, when a block is successfully mined in the blockchain system, the miners who solve complex cryptographic problems receive bitcoin rewards. During the initial phases of Bitcoin, the Bitcoin block reward was worth 50 BTC. In accordance with reward halving (which halves the reward after every 210,000 blocks), the value has been declining since then.
Bitcoin halving occurs every four years, based on the current rate of discovery, where it will take 64 halvings for block rewards to reach zero. In contrast, Ethereum’s block reward was periodically reduced from 5 ETH to 2 ETH as of 2022 because of its inflationary nature.
A blockchain requires the creation of a block reward mechanism to maintain the validation of blocks. Consequently, miners get incentivized by their mining activity. A block reward system is also used to release newly minted coins into circulation, where successful validators are rewarded when they discover (mining) or propose (staking) new blocks.
Cryptocurrency miners are rewarded for processing transactions made with the cryptocurrency through the block reward. It is important to create an immutable record of such transactions for blockchains to work as intended.