Uncle Block (Cryptocurrency)

Uncle blocks are the Ethereum equivalent of Bitcoin’s orphan block, with a few differences. Like orphan blocks, which are associated with Bitcoin, uncle blocks are commonly associated with Ethereum-based blockchains. Similar to Bitcoin’s orphan blocks, uncle blocks are valid and are mined in a genuine manner, but get rejected from the main blockchain due to the working mechanism of the blockchain. (For more, see Orphan Block (Cryptocurrency) Definition.)

A blockchain is formed by a growing chain of blocks that store details of the various transactions occurring on the blockchain network. Miners continue to mine for the new blocks following the standard mining process implemented by the blockchain. The newly found block is appended to the blockchain after verification, and the miner who found this new block is entitled to the block reward. The block height, which indicates the length of the blockchain, increases after the addition of the new block.

However, at times, two different miners may generate a block simultaneously. This happens due to the working mechanism of the blockchain, which may not accept the newly identified blocks into the blockchain instantaneously. Due to this delay, a situation arises where another miner solves for the same exact block and tries to add it to the network chain. It results in a temporary yet dubious state of the blockchain network, as the various nodes try to build a consensus about which of the newly identified blocks to continue with, and which one to be rejected.

The rejected ones are those which have a relatively lower share of proof of work (POW) and constitute the uncle blocks, while the ones with the larger share join the blockchain and work as a normal block.

The name “uncle” is based on the lines of a family tree. Consider the blockchain as a family tree, with accepted blocks the genuine "parent-child" in the tree. However, an uncle, though very close to the parent, isn’t really a part of the nuclear family, hence related but separate from the family, or blockchain.

Unlike the Bitcoin network which does not reward for orphan blocks, Ethereum incentivizes uncle block miners. Valid uncle blocks are rewarded in order to neutralize the effect of network lag on the distribution of mining rewards. It also helps in decreasing the centralization of incentives where large mining pools with high computing power end up claiming the majority of the rewards leaving literally nothing for individual miners. It also increases the security of the network by supplementing the work on the main blockchain by the work done in mining uncle blocks. (See also, Consensus Mechanism (Cryptocurrency) Definition.)