What are Mining Rewards?

Mining Rewards Described

Mining rewards are payments for cryptocurrency miners to validate crypto transactions. Since cryptocurrencies are decentralized and no intermediaries like banks or financial institutions are involved in crypto transactions, crypto mining is a crucial process.

Miners worldwide validate crypto transactions by solving complex mathematical problems and adding new blocks to the decentralized blockchain ledger. Crypto mining is a highly energy-intensive process demanding that miners use significant computational resources. Thus, miners get paid in freshly minted cryptocurrencies as mining rewards.

Besides newly mined cryptocurrencies, some mining pools even pay miners a portion of transaction fees as mining rewards. Cryptocurrencies that follow Prueba de trabajo (PoW) based algorithms give miners mining rewards as payment for validating crypto transactions. Examples of POW-based cryptocurrencies are Bitcoin, Litecoin, Dogecoin, and more.

How are Mining Rewards Determined?

All POW-based blockchains (networks that follow the Proof of Work (PoW) consensus mechanism) offer mining rewards—for example, Bitcoin, Litecoin, Dogecoin, Bitcoin Cash, and Ethereum Classic. Nodes across the network receive these mining rewards as incentives for validating crypto transactions that happen in the blockchain network.

The PoW mechanism is programmed in a way that dictates how participants in the blockchain network should agree on the transactions and enter them into the decentralized ledger. The nodes worldwide validate the crypto transactions. Once validated, they place those transactions in a queue.

The mining node picks up transactions, organizes them as a candidate block, and mines it. Every node mines the solution for the proposed block. The entire process, known as crypto mining, demands miners solve complex cryptographic problems and mine new blocks. The miner who solves the puzzle gets mining rewards.

The mining rewards are often the freshly minted cryptocurrencies. However, how much cryptocurrency is rewarded to the winner depends on the blockchain. The PoW-based blockchains are designed specifically to offer particular cryptocurrencies and transaction fees as mining rewards.

Moreover, most cryptocurrencies undergo halving to create scarcity. Thus, they can beat inflation with stable prices. For instance, Bitcoin undergoes halving every four years, and the mining rewards are halved. Currently, the Bitcoin mining rewards are 3.125 BTC, cut down from 6.25 BTC.

The halving again varies from one cryptocurrency to another. Thus, the mining rewards are also subjective.

How do Mining Rewards Work?

Most popular cryptocurrencies, such as Bitcoin, Litecoin, Dogecoin, and Ethereum Classic, follow the PoW consensus mechanism, which requires miners to validate transactions. Miners, in turn, get paid mining rewards for their contributions.

Miners verify transactions and place them in a queue. The queued transactions are assembled as a block. Miners mine the block by solving cryptographic puzzles. The solution to the problem is often a hexadecimal number that miners need to guess. The miner who guesses the solution first will add the new block to the ledger and receive the mining reward.

The mining rewards are predominantly comprised of,

• Block subsidy

Block subsidies are nothing but newly mined cryptocurrencies that are given to the miners to validate transactions as mining rewards.

• Transaction fees

In some cases, users pay transaction fees to miners to verify their transactions, which will also come under mining rewards.

The value of mining rewards varies from one cryptocurrency to another, depending on the blockchain. Since each cryptocurrency follows different algorithms, the mining difficulty varies depending on the network participants and the cryptocurrency’s popularity. For instance, Bitcoin’s block reward is 3.125 Bitcoins as of April 2024.

The mining reward varies with the cryptocurrency. Moreover, the mining rewards are reduced to half every four years. Cryptocurrencies like Bitcoin and Litecoin are halved every four years to maintain the supply-demand ratio. One way of preventing inflation is by keeping cryptocurrency limited in usage.

Blockchains With Mining Rewards

Almost all PoW-based cryptocurrencies pay mining rewards as incentives for miners. However, miners often prefer very popular cryptocurrencies for mining. Here are a few popular PoW-based cryptocurrencies that pay mining rewards.

1. Bitcoin

The first and most popular cryptocurrency, Bitcoin, is the most opted cryptocurrency in terms of mining and investing. Bitcoin follows the Secure Hash Algorithm (SHA-256), which produces a fixed-size output called a hash, regardless of the input data size. Even a minor change in the data will create an entirely new hash, making the blockchain secure.

The mining difficulty of the SHA-256 algorithm is adjusted for every 2016 block to maintain a constant block generation time of 10 minutes. The mining reward for Bitcoin as of Feb 2025 is 3.125 BTC, and it will further halve in the next four years.

2. Litecoin

Litecoin is another popular cryptocurrency, which is a fork of Bitcoin following the Scrypt algorithm. Litecoin adheres to the PoW consensus mechanism and offers mining rewards to network participants who successfully mine new blocks.

Similar to Bitcoin, Litecoin’s mining difficulty is adjusted for every 2016 blocks. Litecoin maintains a block generation time of 2.5 minutes. Thus, Litecoin transactions are faster than Bitcoins. The mining reward of Litecoin as of Feb 2025 is 6.25 LTC.

3. Dogecoin

Dogecoin is a meme-inspired cryptocurrency that was started as a fun alternative to traditional cryptocurrencies like Bitcoin. It got its name from the Shiba Inu dog from the Doge meme. Unlike Bitcoin or Litecoin, Dogecoin is designed to be abundant. Thus, Dogecoin doesn’t undergo halving like traditional cryptocurrencies.

Around 10,000 Dogecoins are mined every minute, and there is no maximum supply. Thus, the mining rewards for Dogecoin mining will remain the same: 10,000 Dogecoins.

4. Bitcoin Cash

Bitcoin Cash is a fork of Bitcoin that was launched in 2017. Like Bitcoin, it follows the same algorithm, SHA 256. Bitcoin Cash also has a maximum limit of 21 million coins. It was developed to reduce transaction fees and increase transaction speed by allowing more transactions in a single block.

Bitcoin Cash is ideal for everyday transactions because it is fast and relatively cost-effective. As of May 2024, the mining reward for Bitcoin Cash is 3.125 BCH.

5. Ethereum Classic

Ethereum Classic is a fork of Ethereum created in 2016 after a hack of The DAO, a decentralized autonomous organization that used smart contracts on the Ethereum blockchain. The original blockchain was forked and split into two blockchains because some users didn’t agree with the upgrades.

Ethereum Classic utilizes the PoW-based Etchash algorithm. Ethereum Classic undergoes halving to maintain the supply of ETC coins and prevent inflation. The current mining reward for Ethereum Classic is 2.048 ETC.

Blockchains Without Mining Rewards

Though most PoW-based blockchains give mining rewards, not all blockchains give rewards. Yes, a few PoW-based blockchains don’t distribute any mining rewards to miners. Besides, other blockchains that use alternative consensus mechanisms, such as Proof of Stake (PoS) and Delegated Proof of Stake (dPoS), don’t offer mining rewards.

PoS and dPoS blockchains distribute staking rewards rather than mining rewards. These blockchains allow participants who stake their cryptocurrencies to participate in crypto mining and receive freshly minted cryptocurrencies and transaction fees as staking rewards.

Ethereum, which followed the PoW consensus mechanism, later switched to PoS in September 2022. All PoS validators get staking rewards and the right to vote on new blocks in case they have locked up or staked a specific amount of cryptocurrency.

In delegated Proof of Stake (dPoS) blockchains, users delegate their tokens to others who operate nodes. They are often called delegates or witnesses. These delegates with the maximum delegated stakes are preferred to validate transactions.

They are then rewarded with staking rewards for validating transactions and securing the network. The delegates can later share these rewards with their stakers.

Future Perspective of Mining Rewards

Blockchain technology has more potential and can offer much more to the crypto industry. With technological advancements, there will be a continuous evolution in the blockchain, leading to new consensus mechanisms and payment methods.

There can be many blockchains in the future that don’t offer mining rewards. They may implement new consensus mechanisms and other benefits to incentivize network participation. Even the popular cryptocurrency Zcash is considering the possibility of moving to the PoS mechanism from PoW.

No matter what new mechanisms come, the PoW mechanism will continue to exist and play a crucial role in the crypto mining and the blockchain ecosystem. However, when some unique solutions that are independent of market prices and returns come in the future, PoW mechanisms may fade off. But that will take many years, and PoW will stay here for a long time.

Many alternative consensus mechanisms and payment systems exist even now. However, they didn’t grab the attention of users as they are not very popular cryptocurrencies. All popular cryptocurrencies, like Bitcoin and Ethereum, follow the PoW mechanism.

Challenges Faced in Mining Rewards

PoW-based blockchains often face various challenges with mining rewards compared to other blockchains with other consensus mechanisms. Let’s discuss the common challenges faced by users with mining rewards.

1. Reachability

Crypto mining demands sophisticated hardware and reputed mining pools with significant resources to be successful and earn mining rewards. However, not everyone can afford specialized mining hardware as they are way more expensive than general-purpose devices like CPUs and GPUs. That makes it difficult for beginners and novices alike to get started with ASIC mining and earn mining rewards.

2. Unsustainability

Crypto mining has been criticized for one particular reason from the beginning — it is energy intensive. PoW blockchains are often inefficient and harmful to the environment as they demand significant amounts of energy. On the other hand, blockchains that don’t offer mining rewards are more energy-efficient as the miners need not spend energy to solve complex cryptographic problems.

3. Versatility

Blockchains that don’t offer mining rewards are often more innovative and enable users to build decentralized applications like dApps, smart contracts, etc. Additionally, they can help users manage large volumes of data efficiently, unlike mining reward-driven blockchains. On the contrary, blockchains with block rewards often undergo congestion and slow transaction times due to a delayed crypto mining process.