Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.
A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralised database managed by multiple participants is known as Distributed Ledger Technology (DLT).
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Example of blockchains : Bitcoin, Ethereum, Elrond,...
Proof of work
In simple terms, a blockchain is a decentralized ledger that consists of blocks containing some sort of information (with Bitcoin, for example, it is a list of transactions). The blocks in the ledger are immutable, meaning they cannot be changed and are meant to serve as a lasting record of transactional history. If the ledger is decentralized, i.e. does not have a single authority, who can add new blocks to the database and verify their validity? Proof-of-work provides a possible answer to this question.
The concept of “proof-of-work” was in fact introduced before the popularization of blockchains and was not even used in a blockchain at first. In 1992, Dwork and Naor proposed the idea of proof-of-work to combat junk mail, and this idea was developed further by Adam Back in the Hashcash algorithm. The algorithm required every mail sender to do some cryptographic task spending some CPU prior to sending a message. This way, sending junk which involves sending a large number of messages to different addresses becomes quite expensive for spammers.
In 2009, Satoshi Nakamoto – the mysterious creator of Bitcoin – published a white paper where proof-of-work was combined with an economic incentives mechanism to build a means of ensuring the Bitcoin blockchain’s integrity and preserve order in the productions of new blocks. This was the beginning of the biggest cryptocurrency to date – Bitcoin. Satoshi refered to Hashcash as the basis for Bitcoin’s protocol. In Bitcoin, network participants are required to solve cryptographic problems to be able to propose new blocks to the blockchain. Since then, Satoshi’s work has inspired a number of others to develop their own cryptocurrencies, and proof-of-work became one of the most widely used elements of modern blockchains.
Proof of stake
In PoW, the right to create new blocks is given to miners who spend their computational power to solve cryptographic puzzles. One often noted downside of PoW is that it uses significant amounts of energy which is needed to support the network’s security. To address this drawback, alternative protocols, such as proof-of-stake have been developed to serve the same function.
The concept of proof-of-stake was introduced by Scott Nadal and Sunny King in 2012, and it was first adopted by Peercoin blockchain in 2013. Peercoin was one of the first altcoins – cryptocurrencies trying to address perceived issues with Bitcoin – and for some time was seen as its rival. It started as PoW but gradually moved to a mixed PoW and PoS setup. As mining peercoins became less attractive the users could switch to “minting” – producing blocks by staking their coins in the network instead of solving puzzles and getting rewards for it.
Proof-of-stake quickly gained supporters. After Peercoin, Nxt was the first to introduce pure PoS in 2013, and then Blackcoin in 2014. In the following years, proof-of-stake evolved into various new forms, such as delegated-proof-of-stake and leased-proof-of-stake. A number of major blockchain projects use some form of proof-of-stake (Polkadot, Tezos, Cardano), and the move of Ethereum to PoS has been long anticipated by market participants.
Staking usually requires an unbonding period, which is the period of time you need to hold staked currency before it can be sold or transferred.
The fees are a retribution for the staking provider. They are usually used to cover operating costs