Incentives
Solving the hash puzzle mentioned above over and over requires a lot of computer hardware and electric energy. At length, this gets pretty expensive for the miners. That’s why they need some kind of reward or remuneration for their work. There are two ways to reward miners:
- transaction fees
- generation of new coins
Transaction fees are paid by the transaction creator (Alice, for example). They go to the miner who includes this very transaction in his block and finds the puzzle solution first. This is an incentive for each miner to include transactions in his blocks and not to “mine” empty blocks.
The second alternative is to create new coins out of thin air. For this purpose, the protocol says that each successful miner is allowed to add a special transaction (it is called coinbase transaction) in his block. With this transaction, the miner can grant himself a certain, predefined amount of new coins. This coin creation mechanism fulfills two purposes:
- rewarding and incentivizing the miner to follow the protocol
- Creating new coins and distributing these coins at the same time randomly among the miners. There is no central bank necessary which issues new money. And here, the wheel has come full circle. Do you remember that we said at the beginning that Alice has a coin she wants to spend? This block reward is where her coin came from.
And that’s actually the blockchain explained.
In the following topics, we explain a few features and cases in detail.
