Rewards distribution and transaction fees

To run a successful public blockchain, there needs to be some kind of incentive program for individuals to join the network and to participate in the validation of transactions. As explained in the section on the consensus layer, what kind of work needs to be performed to reach consensus depends on the mechanism chosen by the network originator: the more difficult the PoW, the more elaborate the rewards distribution system.

A blockchain that uses PoW rewards the node (or miner) who solves the mathematical puzzle first when creating a new block. The node receives an amount of cryptocurrency in return. For example, Bitcoin currently has a block rewards of 12.5 coins, which halves every 210,000 blocks. With 144 blocks mined each day, it halves on average every four years. The miner that mines the block also receives all of the transaction fees. The total amount of transaction fees that the miner receives depends on the kind of transactions included in the block. The individual fee of a transaction is based on its size (in bytes), the age of its inputs (how long ago the coins spent were received), and the speed at which you want your transaction to be validated and verified. Thus, to submit a transaction successfully, you need to calculate the amount of the fee you need to pay in order for your transaction to be included by a miner in one of the next blocks. The higher the fee you must pay, the quicker your transaction is validated and verified. For example, in Bitcoin, the transaction fee for the next block can range between $5 and $35 USD.

A blockchain that uses PoS does not have a reward system for mining, or, in this case, forging a block of transactions. All of the digital currency is created in the beginning and can, for example, be bought and sold through exchanges and may also distributed as transaction fees. The node that does the proofing of the transactions will only receive the transaction fees included by the original submitters of the transactions. The amount of transaction fee the forger receives depends on the complexity of each individual transaction and the fuel needed to execute it. So, to submit a transaction successfully, once again you need to calculate the amount of the fee you need to pay in order for your transaction to be validated and verified in one of the upcoming blocks. When the amount is too low, it is possible that your transaction will remain in a pending status for a long time. You can then choose whether to resend it with a higher fee. Some blockchains, such as Ethereum, in addition to the transaction fee, also use a gas fee for the execution of the transaction, and when this is too low, your transaction will fail and you will lose the gas fee to the forger.

There are also consensus mechanisms that combine the two systems, such as Proof of Activity (PoA). With PoA, miners first have to solve a cryptographic puzzle to create a block. The winner then receives a block reward. This block, however, does not contain transactions—it only contains the address of the winner. Next, a group of validating nodes (forgers) is chosen to verify the transaction that will be added, and they receive a reward for validating transactions.