What is a Proof of Burn (PoB)?
The creation of the first cryptocurrency, Bitcoin, as well as its underlying blockchain technology, has created endless opportunities in the crypto and financial ecosystems. To function, however, blockchain requires an efficient and secure consensus mechanism. Such an algorithm secures the blockchain’s legitimacy and protects it from manipulation. Proof-of-work (PoW) and proof-of-share (PoS) are the most commonly used consensus methods in the crypto industry. Each consensus algorithm has its own set of benefits and drawbacks. From this article, you will learn about consensus algorithms such as Proof-of-burn.
Firstly, we should consider the role of the consensus algorithm in the blockchain ecosystem. Important to know that it aids in determining which nodes validate transactions in the block. The PoS method chooses the most powerful node, the PoW algorithm chooses the most powerful node, and the Proof-of-space algorithm chooses the node with the largest storage space. Proof-of-Burn entails the burning of tokens to get the right to mine them. This algorithm may appear illogical or even senseless at first, thus it requires understanding the process through which it operates.
The idea behind “proof-of-burn” is that miners transfer coins to an address where no one can spend them since private keys are no longer available. Then, we lose access to the coins after this transaction, i.e., we burn them in this way. In addition, the proof-of-burn principle presupposes the longer-term investment. Thus, the more coins a user burns, the more likely he or she is to mine the next block. By the way, Slimcoin was the first crypto asset to use the proof-of-burn algorithm.
Furthermore, the Counterparty (XCP) currency is one of the brightest and most recognizable examples that is based on PoB protocol. The ICO of XCP did not presuppose mining. Developers avoided an ICO by asking users to send some BTC to an address that is not available for withdrawal. In response to this transaction, Counterparty (XCP) tokens appeared in the Bitcoin chain. In this way, developers spent the energy of already mined bitcoins on XCP issuing. Since BTCs are conditionally “burned,” XCP tokens have a distinct nature when compared to other altcoins. Thus, this algorithm provides equal opportunity for all market participants, even founders.
However, the PoB consensus algorithm is quite new, even so, its mining process is highly decentralized. Some analysts also believe PoB to be sustainable and reliable. Also, the PoB approach assumes that even after selling some coins, a miner intending long-term PoB-network maintenance will earn a profit. The primary motivation for inventing and implementing proof-of-burn was to establish a consensus mechanism that needed extremely expensive effort but was more efficient than proof-of-work. Thus the concept of consuming real resources, such as a cryptocurrency, or a token with actual worth emerged.
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Valentina BEREZA, Team bit4you