Cryptocurrency and blockchain bring with it a host of new concepts due to the open nature of the protocal. Instead of counterparty risk and central governance, Bitcoin has used algorithms and distributed ledger technology to eliminate centralised power and control or at least that's its attempt and core value proposition.
But getting people to want to secure the network and support it with hashing power was not going to be an easy feat, and they needed to be an incentive. Why would miners want to burn out their computers and rigs and spend money on electricity for the good of a network?
Perhaps some would and some did when Bitcoin was still in its infancy but today it's all about the block rewards baby, show me the money!
What are block rewards?
Miners who support the Bitcoin network through the proof of work algorithm compete with one another to secure transactions into a block. The first miner or mining pool to secure another block into the blockchain is then rewarded.
The bitcoin block reward is a particular rule that dictates what amount miners get for mining bitcoin. At the time that bitcoin started, the bitcoin block reward was worth 50 bitcoin. Due to a principle of reward halving over the years, the block reward currently stands at 12.5 BTC and will be halved once again this year in around May 2020.
Image source: - ethereumworldnews.com
Why are block rewards important?
The block reward offers several essential functions that keep the network going. One it pays miners to continue to support the network and lend their hashing power to keep the network secure but also to maintain its optimum speed of for confirming transactions.
Secondly, miners are receivers of the new inflation of virgin Bitcoin, their minding helps create new Bitcoin which can then be sold into the market to fund operations of the miner or be held as an investment. Meaning without block rewards, we would not have a steady stream of Bitcoin added to the market to provide liquidity.
Thirdly block rewards assist with the price of Bitcoin. As the competition for block rewards heats up, miners spend more to maintain their dominance for the share of the rewards. These miners would not want to work at a loss and would ideally like to tell at a profit; this creates scarcity and price discovery based on the cost of being a competing miner.
Finally, block rewards help with the redistribution of Bitcoin. As different miners are rewarded for each block, they secure the Bitcoin rewards are sent to different users or mining pools which helps reduce the centralisation of one person having all the Bitcoin or rewards over time.
A reward for a job well done
Now that you understand the importance of block rewards, we can see how the pieces slowly start to move together and how the Bitcoin networks value can increase as time goes by.
It's not ONLY due to price speculation or liquidity in the market, but there are other market forces at play pushing up the price.
If you'd like to stay on top of what the Bitcoin network is doing check out the following site
Written by @chekohler
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