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Cryptoeconomics & Liberty

network cost (or "block reward")

Chain's first chart (in US$ terms):

  • Green area: Inflation produced per block, in US$;
  • White area: Transaction fees accepted per block, in US$.

Chain's second chart (in coin terms):

  • Green area: Inflation produced per block, in coins;
  • White area: Transaction fees accepted per block, in coins.

The monthly "spikes" visible on the Dash network are its superblocksscheduled remuneration payouts from the decentralized treasury, voted on by the masternodes. Superblocks are for activities like general network marketing and operations of its core team. Theoretically, anyone can be "approved" for a superblock payment, in exchange for work that is deemed beneficial to the Dash network.

network cost / block reward explained

As discussed in the hashrate section, recall that miners are incentivized to help secure a blockchain's network due to the possibility of reaping a block reward. The block reward is the network-wide, economic "incentive" for miners (or stakers) to participate. The block reward is typically composed of two things:

  1. Newly "mined" coins (or inflation), and
  2. Transaction fees

The next few sections will explore the various economics of the block reward. Here one should note thatand this is very importantthe block reward works as a "revenue item" for some parties, and a "cost item" for other parties. This is fundamentally why people use the term "game theory" in the context of Bitcoin and blockchain. In other words:

  1. Inflation and transaction feesfrom the perspective of miners (and stakers)are revenues.
  2. Inflation and transaction feesfrom the perspective of all other network usersare costs.

For illustrative purposes, we are first showing each chain's block reward in US dollar terms, and secondly in its native coin.

The main takeaway readers will obviously notice, from this and subsequent sections, is that at present, the block reward is nearly 100% comprised of inflation, or new coins. Transaction fees are a very small component. This was part of the original design of Bitcoin's creator, Satoshi Nakamoto, and other blockchains have generally followed suit. It is projected that, as these networks scale, and more users come online, transaction fees will slowly take over a larger portion of the block reward. However, it should be noted, this is highly dependent on the halving schedules of various protocols, as well as the general adoption of each network.

Recall that Bitcoin's block reward is scheduled to stop producing inflation around 2140. This means that transaction fees must not become too expensive for users, yet economic "enough" for miners to continue securing its network, well before then. If this happens, society will be better off for it!

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