Bitcoin, the first successful, modern, decentralized currency, was introduced in 2009. Bitcoin’s success has been significantly due to its architecture which relies on a digital public ledger system called blockchain. Blockchain is a digital history of every transaction in the coin. Instead of a central bank, blockchain requires computers around the world to verify transactions to ensure there is no duplication of coin use.
The decentralized computers that verify blockchain transactions are called miners and they search for blocks of transactions that require verification. In Bitcoin, every ten minutes, competing miners submit a block of discovered pending transactions and deliver the blocks into a mathematical puzzle. The first miner to find a solution delivers it to the rest, and, if a majority approve, the block is attached to the ledger and the miner is rewarded with a “Block Reward,” which is a payment of a certain number of coins of the cryptocurrency being mined. Growth in the cryptocurrency is through the issuance of Block Rewards. The marking of new transactions is done through what is called “hashing” because it is performed through the hashing algorithm that permits new blocks to be introduced into the chain.
The effectiveness of blockchain as an alternative to traditional centralized banking systems has led to the creation of over one thousand different crypto currencies and the development of trading markets for those currencies against each other and against traditional currencies.
The most significant variable cost of mining is electricity as a large number of application-specific integrated circuits (ASICs), graphics processing units (GPUs) and central processing units (CPUs) are used to mine blockchain transactions and require large amounts of energy to perform that function.