When a person sends Bitcoin to another person or entity, the transaction has to be verified. Computers worldwide compete to verify the transaction. These computers, run by people known as miners, verify it by the process of solving very complex mathematical puzzles. The first one to crack the puzzle wins. The prize is Bitcoins that are created and is called the block reward.
Imagine the contest as a lottery, where the use of more computing power makes the odds better. The winner bundles or puts the recent transactions into a “block” and adds it to a permanent public record called the blockchain. In return, the network pays them new Bitcoins.
When Bitcoin started, the reward was 50 coins per block. Every four years, that number cuts in half—a process called “halving.” Right now, miners earn 3.125 Bitcoin per block.
This system serves two purposes. It releases new coins into circulation gradually, and it pays the people who keep the network working in the right way. It relies solely on math, electricity, and competition, and no central banks are required.
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