The bitcoin system of trust is based on computation. Transactions are bundled into blocks, which require an enormous amount of computation to prove, but only a small amount of computation to verify as proven. The mining process serves two purposes in bitcoin:
- Mining nodes validate all transactions by reference to bitcoin’s consensus rules. Therefore, mining provides security for bitcoin transactions by rejecting invalid or malformed transactions.
- Mining creates new bitcoin in each block, similar to a central bank printing new money. The amount of bitcoin created per block is limited and diminishes with time, following a fixed issuance schedule.
Mining achieves a fine balance between cost and reward. Mining uses electricity to solve a mathematical problem. A successful miner will collect a reward in the form of new bitcoin and transaction fees. However, the reward will only be collected if the miner has correctly validated all the transactions, to the satisfaction of the rules of consensus. This delicate balance provides security for bitcoin without a central authority.
Source: Mastering Bitcoin 2nd Edition; Antonopoulos, A.; 2017