Miners are an integral part of the Bitcoin blockchain. Because of this, they are rewarded through both transaction fees and block rewards. Learn about the relationship between both in the blog below.
Bitcoin's fee-to-reward ratio refers to the proportion of the miner's income from transaction fees compared to the total block reward.
In early 2023, activities relating to BRC-20 tokens pushed Bitcoin’s fee-to-reward ratio to over 50%, a rare occurrence.We must examine how miners are compensated to better understand Bitcoin’s fee-to-reward ratio. In the Bitcoin network, theThe block reward comprises the block subsidy and the transaction fees.consensus mechanism, miners commit significant computational resources to solve the complex calculations required to add new blocks to the blockchain.
For this article, we’ll use the definitions outlined above. Therefore, block reward can be expressed in this formula:The fee-to-reward ratio is usually expressed as a percentage and calculated by dividing the transaction fees by the block reward using the following formula:Fee-to-reward ratio=transaction fees / block rewardBlock rewards serve as an incentive for miners to commit computational power to keeping the Bitcoin network up and running.
Even though that eventual scenario is still many years into the future, some have raised the question of whether transaction fees will grow enough so miners are compensated sufficiently in the absence of block subsidy.
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