BlockchainBeginner

Block subsidy: what it is and how miners earn it

A block subsidy is new cryptocurrency a proof-of-work network pays to miners for adding a block. Bitcoin cuts its subsidy in half about every four years.

Vahe HakobyanEditor-in-chief Updated Oct 6, 20263 min readFact-checked

Illustration: World-Crypt

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How does a block subsidy work?Why does the subsidy shrink?How do miners use the subsidy?How is the subsidy taxed in the US?FAQ

Key takeaways

A coinbase transaction creates the subsidy inside each block.
The subsidy is only the new-coin part of the block reward.
Bitcoin halves its subsidy about every four years.
Miners often sell subsidy coins to pay electricity and hardware costs.

Short answer

A block subsidy is new cryptocurrency that a proof-of-work network pays to the miner who adds the next valid block. It rewards miners for the computing power they devote to securing the network.

The subsidy is part of a miner's total block reward. Bitcoin uses this model, and a company or government does not set the subsidy amount.

How does a block subsidy work?

A miner gathers transactions into a candidate block and works to find a valid proof of work. The miner includes a special transaction in that block that creates the subsidy coins and sends them to an address the miner controls.

A miner adds a coinbase transaction to the block.
That transaction creates new coins and pays them to the miner.
The subsidy is only the new-coin portion of the block reward.
Transaction fees from the block make up the rest of the reward.

Why does the subsidy shrink?

Bitcoin's protocol limits how many coins will ever exist and spreads new coins over time. It cuts the subsidy in half at fixed intervals, about every four years, in an event called a halving.

How block reward parts change
Part	Source	Change
Block subsidy	New coins	Halves at fixed intervals
Transaction fees	User payments	Varies with demand

How do miners use the subsidy?

Mining requires electricity and hardware, and those costs are real and ongoing. Miners often sell some of the subsidy coins they receive to cover those costs. Some miners hold coins instead, betting that the price will be higher later.

A large mining operation may sell coins as soon as it receives them, while a smaller miner may hold.

How is the subsidy taxed in the US?

The IRS treats cryptocurrency as property. The subsidy counts as ordinary income at its fair market value on the day you receive it. That value becomes your cost basis in the coins.

Frequently asked questions

The network's protocol rules set the amount, and changing it usually requires broad agreement among network participants.

Transaction fees become a larger share of the block reward over time, and some miners may shut down if costs exceed their total reward.

No, each network sets its own issuance rules, so some use a halving schedule and others use different models.

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Written byVahe HakobyanVahe Hakobyan is the editor-in-chief of World-Crypt. He covers bitcoin, markets and regulation, and leads the newsroom that fact-checks every story before it goes live.