It is not so difficult to understand Bitcoin mining when you think of it in terms of going to the bank and making a transaction either depositing or withdrawing. It is the same with Bitcoin whenever you spend a coin it is a transaction.
What happens during a Bitcoin or coins transaction?
- It is verified (making sure you have enough to spend from your wallet)
- It must be allocated to a block or blockchain
- A miner takes transactions and applies a hashing algorithm. Bitcoin’s proof of work algorithm is SHA-256.
The blockchain is a public ledger and every transaction has to be verified and placed into a block.
Mining is the process of verifying each transaction.
It is important that transactions are added in order. Otherwise, an unscrupulous person could send bitcoin to one person and then immediately send another payment. Unless there is a way to verify which came first, chaos could ensue. Sellers would not trust the system if their incoming fund transaction ever failed.