How Ethereum block rewards work — part 1
In 2Ether, block rewards are dynamic. How much a miner receives for finding a new block depends on the block height, current market price, and the miner’s hashrate. We believe it’s a much fairer model compared to what Ethereum and Bitcoin use now. But before we can explain our block rewards, we need to look at how they work in Ethereum.
As you know, blockchain transactions are grouped into blocks. Miners confirm transactions, and once a certain number is collected, a new block is formed. The maximum size of a block is limited. For Bitcoin, the max size is 1 MB per block, but the number of transactions in it depend on how many bytes each contains. In April 2019, the average number of Bitcoin operations per block reached a record value of 2700 per block.
In Ethereum, it’s not the size of a block is limited but the amount of gas. There is no obligatory gas value you have to pay for a transaction, but the higher value you set, the faster it’s processed. The standard amount for a simple payment is 21 000 gas. The gas paid by all users is calculated in a growing total, and once it reaches the maximum, the block is finished. In Ethereum, most blocks have between 170 and 250 transactions, and the current gas limit is around 10 000 000 gas.
To add the block to the blockchain, miners need to solve a cryptography puzzle. It’s not a puzzle designed for humans, though: it can only be solved by a machine following a certain algorithm. ASIC chips are particularly good at this. Whoever finds the correct solution first gets to append the block to the chain and reap the reward.
It often happens that two different miners solve for the same block at the same time and both try to add it to the chain. The two blocks contain the same transactions, they are both mined properly, so nobody can be penalize for any wrongdoing. However, only one can be added. Which miner wins is decided by a consensus of nodes. The rejected block is called an orphan in Bitcoin and an uncle (or ommer) in Ethereum. Since Ethereum blocks take just 15–20 seconds, uncles appear quite often. Sometimes miners even start building the chain on an uncle block, though such a secondary chain is soon abandoned.
Bitcoin doesn’t reward miners who produce orphan blocks, but Ethereum does have a reward for uncles, even if it’s smaller than an average block reward. For the first uncle block, it’s 1/8 less than the full reward. Currently miners get 2 ETH per a normal block, so they receive 1.75 ETH for an uncle. For anyone who continues to build on the uncle chain, the reward for each new block will progressively decrease. That’s why miners tend to abandon such chains once they realized what happened. This is a handy mechanism used by Ethereum to avoid the blockchain turning into a tree with many competing branches.
The ether earned by miners as block rewards is the only way new ETH can enter the market. In other words, it’s the source of inflation. How fast the ETH supply grows, however, can change with each hard fork. In our next instalment, we’ll see how ETH block rewards changed through time — and why it’s such a source of controversy.
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