Members of a blockchain network who process transactions
Blockchain technology might be full of confusing terms, but the principles behind it are fairly simple. Blockchains are peer to peer networks which facilitate the exchange of data between their members. This data could take the form of monetary transactions, or the sending of digital documents or other information.
In blockchains, transactions are processed by members of the network. There is no central authority within a blockchain network, meaning that every individual has an equal role in the system, and an equal opportunity to validate transactions. When network members process transactions, this is known as mining.
In order to validate transactions, network members – or miners – compete with each other to solve complex cryptography puzzles, also known as hashes. When a solution to the puzzle is found, the transaction is completed, and its details are stored in a block of data – a kind of digital ledger. All members of the network have access to these data blocks, making them unalterable – a permanent record of network activity. More blocks are added as more transactions as processed, giving rise to the term blockchain.
Solving cryptography puzzles in order to validate transactions in the blockchain requires a lot of computing power and energy. When members successfully mine a block they are therefore rewarded for their work with units of cryptocurrency. This system is known as Proof of Work (PoW), because miners are rewarded for the work that they have done.
Proof of Work protocols are extremely energy hungry, giving rise to concerns over the environmental impact of blockchain. Incredibly, the electricity consumption of Bitcoin alone is comparable to several small countries. The more blocks that are mined, the more difficult it becomes to solve a Bitcoin hash, meaning that this problem is only set to become worse in the years to come.
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