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How does cryptocurrency work?

Almost all cryptocurrencies record each transaction on a so-called public ledger, which helps ensure that transactions are transparent and protected from tampering, but still require additional storage space (called blocks).

These blocks are verified by miners, who generally obtain tokens for their work and run code 24 hours a day on special hardware called rigs. The annual energy consumption of this process is the same as in Chile, Austria and Finland (approximately 78.5 MWh).

To verify the blocks, many cryptocurrencies, including Bitcoin, use a mechanism called 𝐩𝐫𝐨𝐨𝐟-𝐨𝐟-𝐰𝐨𝐫𝐤, 𝐰𝐡𝐢𝐜𝐡 𝐞𝐧𝐭𝐚𝐢𝐥𝐬 𝐬𝐨𝐥𝐯𝐢𝐧𝐠 𝐜𝐨𝐦𝐩𝐥𝐞𝐱 𝐜𝐫𝐲𝐩𝐭𝐨𝐠𝐫𝐚𝐩𝐡𝐢𝐜 𝐩𝐫𝐨𝐛𝐥𝐞𝐦𝐬.

These operations require a lot of computing and electrical power. Moreover, the difficulty of the POW problems increases with the increasing computational power of the network that is working on the puzzle.

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