Proof of Burn Definition

What Is a Proof of Burn for Cryptocurrency?

Burning evidence is one of several consensus mechanism algorithms implemented by a blockchain network to ensure that the true and valid state of the blockchain network is agreed between all participating nodes. This algorithm is being implemented to avoid the possibility of double-spending any cryptocurrency coin.

The principle of "burning" the coins held by the miners who grant them mining rights is followed by proof of burning.

KEY TAKEAWAYS

• Cryptocurrencies use several methods to validate the data stored on their blockchains, including a method called "proof of burn."

• Proof of burn is the third attempt at creating a system to deter fraudulent activity on a blockchain, while also improving the functioning of the blockchain as a tool for transactions.

• Proof of work and proof of stake are also methods for preventing fraudulent activity on a blockchain; proof of work is the system employed by the original and most popular cryptocurrency, Bitcoin.

Understanding Proof of Burn

Proof of burn (POB) is an alternative consensus algorithm that attempts to tackle a POW system's high energy consumption problem.

A POW system without energy waste is often referred to as a POB. It operates on the principle of enabling miners to "burn" tokens for virtual currency. The right to write blocks in proportion to the burnt coins is then granted to them.

To describe the algorithm, the inventor of the POB algorithm, Iain Stewart, uses an analogy: burnt coins are like mining rigs. A miner burns their coins to purchase a virtual mining rig in this analogy, which gives them the power to mine blocks. The more coins burned by the miner, the greater their "rig" for virtual mining will be.

Miners dispatch them to a verifiably un-spendable address to burn the coins. This process (other than the burned coins) does not consume many resources and ensures that the network stays active and agile. Miners are allowed to burn the native currency or the currency of an alternate chain, such as Bitcoin, depending on the implementation. In exchange, they receive a reward from the blockchain's native currency token.

You can send transactions that will burn your own crypto-currency coins to the network. On top of your block, other participants may mine/burn, and you may also take other participants' transactions to add them to your block. All of this burning activity essentially keeps the network agile, and participants are rewarded for their operations (both burning their own coins and burning the coins of other people).

To prevent the possibility of unfair advantages for early adopters, the POB system has implemented a mechanism that promotes the periodic burning of cryptocurrency coins to maintain mining power. The power of burnt coins “decays” or reduces partially each time a new block is mined. This promotes regular activity by the miners, instead of a one-time, early investment. To maintain a competitive edge, miners may also need to periodically invest in better equipment as technology advances.

Example of Proof of Burn

POB implementation can be customized. For example, Slimcoin, a virtual currency network that uses POB, allows a miner to burn coins that not only gives them the right to compete for the next block but also gives them the chance to receive blocks during a longer time period, for at least a year.

Essentially, Slimcoin’s POB implementation combines three algorithms: POW, POS, and the core POB concept. The process of burning coins utilizes POW; the more coins one burns the more chances one has to mine, thus ensuring POS; and the whole ecosystem follows the POB concept.