Last updated on November 19th, 2017 at 10:55 am
Hello! My question is as follows: when a miner is rewarded with bitcoin upon adding a block to the chain, where does the bitcoin come from? Is there some sort of central pool of bitcoins that pays out periodically to miners? I am confused as to where this new generated currency is coming from and how it gets to the miners. Thank you!
Good question! The bitcoins a miner receives for solving a block (known as the coinbase reward) are generated by the protocol itself. Each miner associates a Bitcoin address with their mining efforts so that when they find a block, the protocol credits their address with the newly-created bitcoins (plus the mining fee). Unlike the fee, these new bitcoins do not exist prior to the block being found.
There is also delay of 100 blocks before these new coins are able to be spent by the miners. This prevents problems (such as payment reversals) from happening in the event of a blockchain reorganisation which invalidates and substitutes the miner’s solved block.
This process is what allows the supply of bitcoins to slowly increase over time. Currently about 17 out the total 21 million bitcoins have been distributed in this fashion. It’s also worth noting that the coinbase reward is halved roughly every 4 years. It began at 50 bitcoins, halved to 25 and then halved again to the current 12.5 BTC reward.
At that point, miners will receive their payment in fees only. Perhaps they will add further services to get paid. For example, funding of lightning network channels.
so what will happen when we mine all the 21 million bitcoins
The specific miner who mines the block gets 12.5 BTC, yes. This reward will drop to 6.25 BTC from around mid-2020.
I must be missing something. You are saying that the miners get 12.5 Bitcoins reward for each new block???