Analysis

What is Proof of Burn (PoB) ?

Blockchain is an extremely innovative invention. However, to be able to work, it needs a consent algorithm that is safe and efficient. This algorithm protects the blockchain from tampering and ensures its validity. Proof of Work (PoW) and Proof of Stake (PoS) are the consensus algorithms most commonly used in cryptocurrencies. However, there are several alternative methods that are few to know. One of these consensus methods is the Proof of Burn (PoB), which requires the user to burn the proof of work of a mined cryptocurrency, such as bitcoin, in exchange for mining or token privileges.

How does the Proof of Burn work?

The Proof of Burn works like this: the miner send coins to a non-expendable address (also called eater address), burning them permanently. Once the coins are burned, they are not accessible and can no longer be spent. Since Proof of Burn transactions are recorded on the blockchain, there is evidence that coins can no longer be used and the user can then be rewarded.

The idea behind the Proof of Burn is that by burning a cryptocurrency, a user demonstrates a willingness to undergo a loss in the short term for a longer term investment. Over time, users are rewarded when they mine through the Proof of Burn reward mechanism, resulting in the lasting privilege of undermining the system.

The more coins a user burns, the more likely he is to undermine the next block. The Proof of Burn can be implemented in different ways. For example, the coins burned may be those of the original currency or those of an alternative. With the Proof of Burn, its share decreases over time.

A bit like with the bitcoin and the need to invest in increasingly powerful mining hardware, you will need to burn more coins to keep the chance of being selected for mining the next block.

Eater Addresses

The eater addresses are used in the Proof of Burn algorithms to conserve coins that can never be spent. They are valid Bitcoin addresses that have been generated randomly and not from a specific private key. Since it is not possible to trace a private key from a Bitcoin address, these eater addresses are practically non-expendable. Here is an example of an eater address that has already accumulated a large sum of money that is lost forever.

What are the advantages of Proof of Burn?

It could be argued that a Proof of Burn protocol encourages long-term involvement in a project. In fact, if there is a greater percentage of investors in the long term, the price may have better stability. In addition, Proof of Burn helps to determine the distribution of cryptocurrencies in an equitable and decentralized manner. This is in contrast to the proof of work used in bitcoin, where we saw the rise of the ASIC miner and the centralization of mining. In general, the Proof of Burn seems to be a good way to distribute new currencies.

What are the disadvantages of Proof of Burn?

One downside to Proof of Burn is that, like proof of work, it involves a waste of resources. Moreover, mining power goes to those who are willing to burn more money. This is a problem similar to that of the proof of stake, according to which the rich become richer. As with other consensus protocols, there is no guarantee that a user will recover the value of the burnt coins, which makes the PoB relatively risky.

Which cryptocurrencies have implemented the PoB?

Among the examples of cryptocurrencies that have implemented this system are Slimcoin (SLM) and Counterparty (XCP). In the case of Slimcoin, the Proof of Burn is used as a consent algorithm and a mining method. In contrast, Counterparty uses the PoB to distribute its tokens. The participant sends the bitcoins to a non-expendable address and receives Counterparty tokens in return.

 

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