For most users of cryptocurrencies it is not necessary to understand how the mining process in itself works, but it is fundamentally important to understand that there is a mining process to create the virtual currency.
Cryptocurrencies has to be mined by users using a mining program that solves sophisticated algorithms in order to release blocks of coins that can go into circulation.
This is part that makes the cryptocurrencies unique, as there is nobody who can simply press a button and get unlimited coins. Everybody can compete equally while mining coins, by buying the same equipment as one another.
The different cryptocurrencies uses different types of algorithms in order for the blocks to be released, but in general it is not something that you should be using your computer to do as it takes specific equipment to mine and it will provide you with a huge electricity bill compared to the profits you will be able to make from it.
It is also worth noting that the more coins that has been mined from a cryptocurrency, the more difficult it gets to release new blocks and thus get new coins.
The algorithms has been made this way, to ensure that all the coins would not be mined instantly and leave room for the currency to stabilize and not be over populated from the beginning, thus not having any significant value for anyone besides the miners.
Cryptocurrencies have a limited amount of coins that can be mined and once they have all been mined, there will be no more of them being created as it is virtually impossible.
This means that when all coins has been mined, they will be the only coins in circulation forever and no further coins will be added to the system. That is why many people see them as a good alternative to the currencies we have today that is based on nothing but goodwill between countries in order to ensure the value of the currency doesn’t fluctuate.
Each cryptocurrency has made a decision regarding which algorithm they wish to use to mine their coins, before they are created. There are two different algorithms that are used for almost all the coins that is in existence today, which is the SHA-256 and Scrypt algorithms. Here they are:
SHA-256: The SHA-256 algorithm is the first algorithm that was used with a cryptocurrency, when the Bitcoin was created using it.
Scrypt: The Scrypt algorithm that cryptocurrencies use is a “proof-of-work” algorithm, which is basically using the same idea behind the Scrypt algorithm, but is targeted against releasing blocks rather than block an attack. It was released in 2012 and was quickly used by cryptocurrencies for mining coins as another way than the SHA-256 algorithm that Bitcoin used.