The blockchain operates without a central authority but instead by a network of communicating computers running bitcoin software. Bitcoin transactions are sent to this network using readily available software applications. Network computers or nodes validate the transactions, add them to their copy of the ledger, and broadcast these ledger additions to other computers.
The blockchain is a distributed and decentralized database. To achieve independent verification of the chain of ownership of any and every bitcoin amount, each network computer stores its own copy of the blockchain. A transaction typically references previous transaction outputs as new transaction inputs and dedicates all input bitcoin values to new outputs.
There is no file with bitcoins in it. Instead, there are records of transactions between different bitcoin addresses, with balances that increase and decrease. Transactions are not encrypted, so it is possible to browse and view every transaction ever added onto the blockchain.
Mining is the process of adding transaction records to the blockchain. Bitcoin computers or nodes use the blockchain to distinguish legitimate bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.