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Why do networks pay people at all?

Beginner · Mining and Staking · about 5 min read

A blockchain has no boss, so it pays people to do the work of checking and recording transactions, and the payment gives them a reason to do it honestly.

How it works

• Bitcoin pays miners twice. A miner who adds a block earns newly created bitcoin, called the subsidy, plus the transaction fees in that block.
• The subsidy shrinks. It halves every 210,000 blocks, which works out to about every four years. It has been 3.125 bitcoin per block since the April 2024 halving. As it falls, fees are expected to become a bigger share of what miners earn.
• Ethereum pays stakers. Validators earn rewards in ETH for helping the network agree on blocks, and a validator that provably cheats is slashed and loses part of its stake.
• Why pay at all? Security depends on people having something to gain from playing fair, and something to lose from cheating. Without payment, nobody would have a reason to do the work.

Keep in mind

• The fees you pay when you send crypto are part of this system. On Ethereum, part of each fee is burned, which removes it from supply instead of paying anyone.
• Rewards are not guaranteed, and they are paid in the coin itself, so their value moves with the price.
• General information, not financial advice.

A worked example: what a Bitcoin block pays

A new Bitcoin block arrives about every ten minutes, which is roughly 144 a day. At 3.125 bitcoin per block, the subsidy comes to about 450 bitcoin a day, plus whatever fees the block's transactions carry. The subsidy started at 50 bitcoin and has halved four times: to 25, 12.5, 6.25 and 3.125. The most recent halving was on 20 April 2024, and the next is expected around block 1,050,000, in about 2028.

Who is paying for it?

Two groups bear the cost. Holders bear it through the newly created coins, which add to supply. Users bear it through the fees they attach to transactions. Over time, as the subsidy shrinks, fees are expected to matter more. Ethereum works differently: its validators earn rewards for staking, and part of every fee is burned, which removes it from supply.

Rewards are not profit

A reward is what comes in, not what is left over. A Bitcoin miner has to pay for equipment and electricity. A staker has to lock coins, run or trust software and accept the risk of penalties. The reward is also paid in the coin itself, so its value moves with the price. Someone can earn more coins and still end up with less money.

Common mistakes

• Treating a headline reward figure as a guaranteed income.
• Ignoring the cost of electricity and equipment when thinking about mining.
• Believing the halving always raises the price. It cuts new supply, but the price depends on demand too.
• Confusing fees that pay miners with fees that are burned.

Try it yourself

1. Work out the Bitcoin subsidy per day at 3.125 per block and 144 blocks a day. Then do it for the next halving at 1.5625 per block.
2. Look up a recent Bitcoin block on a block explorer. Note the subsidy and the total fees in it, and what share the fees are.
3. For Ethereum, read the staking page on ethereum.org and write one line on how staking rewards differ from mining rewards.

Key terms

Block reward, subsidy, transaction fee, halving, validator.

Sources and credits

Halving dates and block rewards: CoinGecko, Bitcoin halving. How blocks and rewards work: Bitcoin Developer Guide, Block chain. Staking rewards and penalties: ethereum.org, Staking. Fees and burning: ethereum.org, Gas and fees. General information, not financial advice.

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