To understand Blockchain lets take an example, in our day to day value transfer we need a third party which takes care of facilitating all the transactions in Centralizing way for e.g banks for money, notary for land transfer etc maintaining a ledger.
This Centralization concentrates power in hands of few individuals. What if we return power back to people by Decentralizing it?
In November 2008, Satoshi Nakamoto published a Whitepaper for a new monetary system which,
This monetary system maintained a Digital Ledger on peer to peer network of nodes (individual computers) having following characteristics:
A Ledger can be understood as an ordered list of transactions meant for book keeping. When we maintain that bookkeeping online it is termed as Digital Ledger. A simple ledger is shown below maintaining records of all the value transfers between multiple parties,
Proof of Work is a consensus algorithm in which computation power is deciding criteria to win an election.
Suppose we want to append a value transfer between A and B to Blockchain. Value transfer is represented as transaction in Blockchain. To append this transaction following steps occurs in sequence
Proof of Stake is a consensus algorithm in which Economic Stakes are deciding criteria to win an election.
Stake can be defined as the amount of wealth (currency of that Blockchain) that a miner is willing to put on stake i.e. lock up for a certain amount of time. Higher the stake higher his chances to win the next election i.e getting the opportunity to mine next block and earn reward.
Blockchain can be understood as a code that runs on the computers of all the participants in the trustless network.