Network Incentives

On proof-of-work (PoW) blockchains such as Bitcoin, gas fees are paid by end users to the miners for validating their transactions. Miners compete using specialized computing equipment to generate random codes called hashes. The first miner able to randomly generate a cryptographic hash starting with the same number of zeroes (or more) compared to the “target hash” is declared the winner.

The successful miner can then fill the new block with pending transactions. This earns the miner newly created cryptocurrency distributed from the block reward and any fees attached to those transactions.

Gas fees are also important in blockchain protocols using the proof-of-stake (PoS) consensus mechanism, such as the evolution of Ethereum, Ethereum 2.0. On these blockchains, gas fees reward validators who first commit a certain amount of cryptocurrency to the network in order to be selected to verify new transactions.

Those who lock away more coins can run more validators, making them more likely to be selected to validate new transactions than those who commit fewer coins. However, some programmatic randomness at the protocol level means this isn’t guaranteed and validators with fewer coins can still be selected to validate transactions and earn the block reward.