CS120: Bitcoin for Developers I

To construct the coinbase transaction, Jing's node first calculates the total amount of transaction fees by adding all the inputs and outputs of the 418 transactions that were added to the block. The fees are calculated as:

Total Fees = Sum(Inputs) – Sum(Outputs)

In block 277,316, the total transaction fees are 0.09094928 bitcoin.

Next, Jing's node calculates the correct reward for the new block. The reward is calculated based on the block height, starting at 50 bitcoin per block and reduced by half every 210,000 blocks. Because this block is at height 277,316, the correct reward is 25 bitcoin.

The calculation can be seen in function GetBlockSubsidy in the Bitcoin Core client, as shown in Calculating the block reward – Function GetBlockSubsidy, Bitcoin Core Client, main.cpp.

CAmount GetBlockSubsidy(int nHeight, const Consensus::Params& consensusParams)
{
    int halvings = nHeight / consensusParams.nSubsidyHalvingInterval;
    // Force block reward to zero when right shift is undefined.
    if (halvings >= 64)
        return 0;

    CAmount nSubsidy = 50 * COIN;
    // Subsidy is cut in half every 210,000 blocks which will occur approximately every 4 years.
    nSubsidy >>= halvings;
    return nSubsidy;
}

The initial subsidy is calculated in satoshis by multiplying 50 with the COIN constant (100,000,000 satoshis). This sets the initial reward (nSubsidy) at 5 billion satoshis.

Next, the function calculates the number of halvings that have occurred by dividing the current block height by the halving interval (SubsidyHalvingInterval). In the case of block 277,316, with a halving interval every 210,000 blocks, the result is 1 halving.

The maximum number of halvings allowed is 64, so the code imposes a zero reward (returns only the fees) if the 64 halvings is exceeded.

Next, the function uses the binary-right-shift operator to divide the reward (nSubsidy) by two for each round of halving. In the case of block 277,316, this would binary-right-shift the reward of 5 billion satoshis once (one halving) and result in 2.5 billion satoshis, or 25 bitcoin. The binary-right-shift operator is used because it is more efficient than multiple repeated divisions. To avoid a potential bug, the shift operation is skipped after 63 halvings, and the subsidy is set to 0.

Finally, the coinbase reward (nSubsidy) is added to the transaction fees (nFees), and the sum is returned.

Tip: If Jing's mining node writes the coinbase transaction, what stops Jing from "rewarding" himself 100 or 1000 bitcoin? The answer is that an incorrect reward would result in the block being deemed invalid by everyone else, wasting Jing's electricity used for Proof-of-Work. Jing only gets to spend the reward if the block is accepted by everyone.