Is it correct to say that:

In Bitcoin, it is crucial to incentivize miners by monetary reward, because mining process has significant monetary cost (energy/electricity cost). ? otherwise, mining process is not affordable for miners ? is this sentence correct?

I mean if we assume that mining process to solve PoW was free (consider accessing to free electricity was possible for everybody in earth!), then could we have fee-free transactions in Bitcoin? and incentivize miners by a non-monetary rewards?

In other words, the reason of using monetary rewards is that consuming electricity has monetary cost for miners and so this monetary reward is compensation of miners electricity cost ?

Please note that my purpose to ask this question is not the reason of PoW as consensus mechanism, but also I mean the reason of using monetary rewards not reward. We can have other types of rewards, not necessarily monetary reward. But apparently in Bitcoin because of nature of PoW that has monetary cost for miners, we may have to use monetary rewards for miners.The matter of my question is not reward itself, but also the type of reward Bitcoin uses that is monetary reward.

I'd like also to mention following notes:

(1) non-monetary reward does not work for PoW, since mining process has monetary cost for miners and so non-monetary is not affordable for miners.

(2) the purpose of non-monetary reward is bringing fee-free transactions, since resource of monetary rewards is transactions fee.

(3) we can make non-monetary reward non for selling such that a point for faster confirmation only belongs to a specific public key exclusively and it is not Non-transferable to other public key.

To elaborate on my comment,

I think that any type of 'reward' will have a monetary value, whether that be indirect or not. Proposing to reward miners with something like 'faster transaction confirmation' (the example in your comment) would only add friction to their ability to reap financial reward. A savvy miner could expand their mining infrastructure, to gain a ton of quick confirmation credits. With that done, they could then sell faster confirmations to other users, and presumably profit in doing so.

I think that adding friction in this way is bad, it introduces external factors (the ability of a miner to network and sell their fast confirmation) that will affect the profitability of individual miners differently. Having an explicit monetary reward (ie the bitcoin block reward) keeps friction low: all miners that find a block will are equally capable of claiming its reward.

As I wrote above, If the reward is something to be sought after, then it will have value, even if indirectly.

There is no known way to create a secure cryptocurrency network without cost. POW requires energy expenditure, POS requires users to lock up their funds (opportunity costs), etc. Relying on users to pay these costs without reward makes for broken game theory, and a broken/insecure network.

  • Thank you, I'd like to mention (1) non-monetary reward does not work for PoW, since mining process has monetary cost for miners and so non-monetary is not affordable for miners (2) the purpose of non-monetary reward is bringing fee-free transactions, since resource of monetary rewards is transactions fee**(3) we can make **non-monetary reward non for selling such that a point for faster confirmation only belongs to a specific public key exclusively and it is not Non-transferable to other public key. – sas Aug 16 at 9:03
  • @sas I don't think you could design a system to guarantee the reward could not be sold. In the example you are giving, the miner could just load their 'rewarded' public key with a balance, and then act as a middleman for quick transactions. If a user need to pay an invoice, instead they pay the miner the invoice amount + a premium, and then the miner sends a transaction to pay the invoice from their 'rewarded public key' (to get a quick confirmation). – chytrik Aug 16 at 9:11
  • OK, even in this case we can have fee-free transactions, because the network dos not need to provide monetary rewards for which adds fees to transactions. In this case, we do not need fee for transactions. – sas Aug 16 at 9:19

it is crucial to incentivize miners by monetary reward, because mining process has significant monetary cost (energy/electricity cost). ? otherwise, mining process is not affordable for miners ?

This was not the specific reason for a block reward. The whitepaper states:

This adds an incentive for nodes to support the network, and provides a way to initially distribute coins into circulation, since there is no central authority to issue them.

  1. The need to secure the blockchain (with proof of work). Maybe in an ideal world miners would mine just to secure the network, and everyone would feel the value was worth the cost.
  2. A controlled supply of Bitcoin with a minting process. You could premine all of the coins, but who gets the coins? Mining is a fair way of distributing coins by rewarding those who do work (in the form of hashpower).

Proof of Work

In order to establish a consensus mechanism nodes agree to validate blocks with a minimum proof of work (energy used, money spent).

Proof of Work can be also thought of as proof of energy spent. In physics:

Work transfers energy from one place to another, or one form to another.

In this case, the energy is transferred from electricity to a mechanism for consensus, and security of funds. Without the work, you don't have consensus or security.

  • Thank you, concerning "This was not the specific reason for a block reward." But my purpose to ask this question is not the reason of PoW as consensus mechanism, but also I mean the reason of using monetary rewards not reward. We can have other types of rewards, not necessarily monetary reward. But apparently in Bitcoin because of nature of PoW that has monetary cost for miners, we may have to use monetary rewards for miners.The matter of my question is not reward itself, but also the type of reward Bitcoin uses that is monetary reward. – sas Aug 15 at 20:24
  • I see, thanks for clarifying. Can you provide an example of other types of non-monetary rewards? One that mining does provide is security, as I mentioned above. However, bitcoin is a digital currency. There must be a mechanism for minting new coins fairly. If the reward wasn't in Bitcoin, how would you achieve this? – JBaczuk Aug 15 at 20:32
  • Yes in case of using PoW, it is not possible to incentivize miners with a non-monetary reward. However, if we assume another consensus instead of PoW in which there is not any monetary cost for transaction validators, a non-monetary reward could be possible ex. giving an additional point to validators by which their transactions will be confirmed faster than others. In current Bitcoin consensus system it is not possible to use such a reward to transactions validators. For this we need to replace consensus mechanism (PoW) by a new approach ... – sas Aug 15 at 20:56
  • 1
    It seems odd to say that the block reward was not designed as an incentive (to help cover costs), when the sentence you quoted from the whitepaper starts with "this adds an incentive...". I think covering costs is an implied reason that a user would need to be incentivized. @sas I'm not sure any 'reward' could be non-monetary. In your example, the 'point' given to 'miners' would have value (faster confirmation), and it could be sold to others. If the reward is something to be sought after, then it will have value, even if indirectly. – chytrik Aug 16 at 0:18
  • Great point @chytrk – JBaczuk Aug 16 at 23:56

Your Answer

 

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Not the answer you're looking for? Browse other questions tagged or ask your own question.