Block Rewards

Proof-of-work cryptocurrencies, such as bitcoin, provide incentives for miners to block rewards. There has been an implicit assumption that the protection of the blockchain is not compromised by whether miners are paid by block rewards or transaction fees, but a study indicates that this might not be the case under some conditions.

The benefits paid to miners improve the distribution of the cryptocurrency. The integrity of the network can be maintained by ensuring that verifying transactions is an expensive business, as long as benevolent nodes manage the majority of computing resources.

In order to make verification expensive enough to verify the public blockchain correctly, the verification algorithm requires a lot of computing power, and thus electricity. Not only do miners have to take into account the expenditures associated with costly equipment required to be able to solve a hash problem, they also have to consider the large amount of electrical resources in pursuit of the solution. Visit now for cryptocurrency faucet.

The current value, not the long-term value, of the cryptocurrency supports the reward scheme to incentivize miners to engage in costly mining activities. Some sources claim that the current bitcoin design is very inefficient, generating a welfare loss of 1.4% relative to an efficient cash system. The main source for this inefficiency is the large mining cost, which is estimated to be 360 Million USD per year.

This translates into users being willing to accept a cash system with an inflation rate of 230% before being better off using bitcoin as a means of payment. However, the efficiency of the bitcoin system can be significantly improved by optimizing the rate of coin creation and minimizing transaction fees. Another potential improvement is to eliminate inefficient mining activities by changing the consensus protocol altogether.