Proof of burn (PoB) is a method used by cryptocurrencies for distributed consensus as an alternative to Proof of Work and Proof of Stake. The concept behind Proof of burn is that miners prove that they burned coins (i.e. that they sent the coins to a verifiable unspendable address). Although this is expensive from an individual’s perspective, PoB consumes no resources other than the burned coins, unlike Proof of Work, for example, which has the potential to consume huge amounts of energy in order to mine.
The idea behind distributed consensus strategies are that something is hard to do but easy to verify. The concept of Proof of Burn is that in order for miners to prove that they’ve done something tough, all that is required is that the miner themselves find it expensive, rather than a requirement for real resources such as electricity or human labour or expensive hardware. By burning the currency, it provides proof as well as immutability. The theory suggests that although Proof of Work is suitable when setting up a cryptocurrency, once the currency has been established, there are means whereby a task can feel ‘expensive’ to a miner but not actually be ‘expensive’ in terms of resources consumed. However, by committing coins to the unspendable address, the miner has shown commitment to mine on the system and therefore is given lifetime privileges to mine on the system. The more coins that the miner burns the better the opportunity he will have to mine the next block. Over time, the miner’s stake in the system decays, requiring them to burn more coins to increase the odds of being selected to mine the next block.
Although there are clear advantages of Proof to Burn over Proof of Work, there are also a number of advantages that it has over Proof of Stake. For example, Proof of Burn rewards entrepreneurial risk rather than wealth because, with Proof of Stake, the more coins that you stake the bigger the rewards, resulting in a potential “rich get richer” scenario. In addition, although “staked” coins can be stolen by hacking the private key to the coins, burnt coins cannot be hacked as easily. As an attacker would require significant time to obtain a large amount of coins they could easily be traced by the legitimate owner of the private.
Proof of Burn rewards long-term investments, by providing that miners are effectively trading short-term losses for long-term gains. It therefore encourages long-term involvement in the project, unlike other cryptocurrencies. In addition, because of the probability of profits, it is more likely that there will be a stable amount of nodes on the network, as there is incentive even when the price is low.
Proof of Burn is used by Slimcoin as part of its consensus algorithm and alternative mining method. The network allows participants with full Slimcoin nodes to earn coins by finding Proof of Burn blocks, which is determined by a score called Effective Burnt Coins, based on the amount of coins burnt by the node.
Although an interesting alternative to proof of work, Proof of Work is still considered to be wasting resources – although in this instance it is a waste of coins rather than real-world energy. In addition, the mining power favours those who are willing to burn more of the cryptocurrency.