In a proof-of-work blockchain, new coins are added through mining. But mining isn’t only “finding” new coins, like with gold diggers and their gold - in a crypto context, mining is the way that new transactions on the blockchain are being confirmed and validated.
So if you were to purchase bitcoin for example, your purchase will be registered on the blockchain. Your purchase is also called a transaction. All transactions on a blockchain are publicly available, so everyone participating in the network can see what’s going on. After there’s been enough transactions registered to collect them into a larger bundle – also called a block – the block is then ready to be added to the blockchain.
And this is where the bitcoin miner enters the picture. Because before a new block can be added to the blockchain, the block’s encrypted hash-code needs to be found.
A hash code could look like this:
As you can see, the code is quite long and hard to guess. That’s why crypto miners need to run a program on their computer, which guesses all sorts of different codes before the actual hash-code is found.
Everyone can participate in the guessing game. That’s why there’s a race on who can find the right answer first.
When a person finds the correct hash code for the new block of transactions, the person is then rewarded with bitcoins. That’s the way that new bitcoins are brought into circulation.
But before the person can receive their bitcoins as a reward, the rest of the blockchain network checks that the transactions in question correspond to the transactions in the public blockchain ledger. If more than 50% of the network can confirm the transactions in the block, it’s added to the blockchain.
The person will then receive some newly “mined” bitcoins as a reward for their hard work of finding the correct hash code – and that’s how more bitcoins are produced.
But at the same time, bitcoin mining also makes sure that all blocks being added correspond to the transactions in the public blockchain ledger. That’s how cryptocurrencies gain trust and security.