PROOF OF BURN

Proof of Burn happens to be one of those consensus mechanisms that is barely used by blockchains, I am writing about it because the way it works is quite strange, which I think also explains why it is barely used. The Proof of Burn consensus mechanism was created by Lain Stewart, who first presented his idea of Proof of Burn on the Bitcointalk forum in December 2012. The motive behind the creation of this consensus mechanism was to develop a consensus protocol that was more effective than Proof of Work but required an extremely expensive task to complete. Thus, the concept of using actual, material resources, such as a cryptocurrency or token with actual value, to acquire the ability to mine within the blockchain.

HOW DOES PROOF OF BURN WORK

             This consensus mechanism picks its validators by asking them to burn a certain amount of tokens (either the native token of the chain or any other random token). What do I mean by burning tokens? In other words, it’s the act of rendering a number of tokens useless. This can be done by sending these tokens to a wallet address where they cannot be spent. In order to prevent their use, miners send these coins to these addresses. It's delivered to a publicly accessible address where it can't be accessed and is therefore useless. When the coin is burned, its availability decreases, leading to a potential increase in its value. So, once you do this, you stand a chance of becoming a validator via a random selection process by the system, and the more tokens you burn, the higher the chances of your being selected to become a validator. When the consumer burns these tokens, he is demonstrating a strong commitment to the system by forgoing a short-term profit in favor of a long-term profit; hence, will protect his investment by protecting the system.

Examples of cryptocurrencies and blockchains that use Proof of Burn

-       BITSHARES (BTS)

-       COUNTERPARTY (XCP)

-       SLIMCOIN (SLM)

PROS AND CONS OF PROOF OF BURN

PROS

Environmentally friendly: Because tokens and cryptocurrencies are burned virtually, no hardware or mining equipment is required to complete the process, resulting in no excess power consumption or the release of harmful byproducts into the environment.

 

Security: By encouraging miners to invest (burn) their coins and tokens, the network is guaranteed to be secure and stable. As a result, it guarantees network miners honorable and reliable conduct because they do not want to risk their investments.

 

-       Burning of the tokens creates scarcity of the token, hence pumps up the price of the token.

 

CONS

-      Lack of transparency: The entire process of burning the tokens ( sending them to a non-spendable account), is not always transparent and easily verifiable by most average users.

 

-      Lack of Speed/scalability: The process of confirming transactions and blocks on the Proof of Burn mechanism is usually slow, slower than that of Proof of Work.

 

-      The likelihood of the founders of a project or blockchain built using Proof of Burn to abscond with supposedly burnt tokens is really high.