Proof of Burn (PoB) is a reasonable alternative consensus algorithm that you see very often. There are a few blockchains that are using this model. A good chance that you don’t even know what Proof of Burn is. Below you’ll find more about how Proof of Burn works, which advantages and disadvantages, and by who it is used.
What is Proof of Burn?
Actually, the basics of Proof of Burn are the same as that of Proof of Work. However, Proof of Burn is a lot more energy efficient than the well-known PoW algorithm. It is therefore sometimes referred to as the ‘green Proof of Work’.
The moment a participant of the network wants to validate blocks, he will first have to burn coins. Hence the name of this algorithm. The participant does this by sending crypto coins to a specific address, after which the crypto coins are burned. These crypto coins that are used do not always have to be from the same blockchain. For example, it may also be Bitcoin or Ethereum coins.
In exchange for burning the coins, the participant receives a reward in the form of the blockchain’s own cryptocurrency.
It is possible to send a transaction into the network, after which other miners will validate the transaction by burning coins. They can do this on top of your block, or by adding them to another block.
Participants are always rewarded for their work. Something that does not happen at Proof of Work. There, despite your effort, you are not always rewarded for the work you do. Another difference is that this algorithm is a lot friendlier for people who just want to start mining new blocks.
The more often and faster you add new blocks to the network in succession, the lower the reward you get. In this way, the algorithm wants to ensure that the reward is distributed more fairly. Newcomers thus have a greater chance of receiving rewards and can more easily contribute to the network.
The benefits of Proof of Burn
We have actually already revealed a number of advantages. For example, Proof of Burn is a lot more sustainable than other algorithms. Participants are always rewarded for the work they do. The work they provide is also used at all times. As a result, no energy is lost. But besides the aforementioned advantages, there are a lot of other advantages that we can not miss.
Likewise, it is not necessary to buy expensive hardware to participate in the network. Newcomers are selected and preferred over participants who often burn coins. These two points make it a lot easier to participate in the Proof of Burn algorithm.
This algorithm also ensures that participants remain engaged within the network for the long term. The longer they stay engaged and the more time they allow between trades, the higher the rewards they get.
The last advantage is to mention that the stock of the number of coins does not grow. With Bitcoin, more and more coins are being added, from which miners are paid. In Proof of Burn, the coins are burned, leaving the coins scarce. This benefits the value of the cryptocurrency.
The biggest drawbacks of Proof of Burn
But of course, Proof of Burn also has several drawbacks. Disadvantages that make many blockchains opt for a different consensus algorithm. For example, some say that Proof of Burn is not that sustainable at all, since it is possible to burn Bitcoins. These Bitcoins are mined through an algorithm that is not sustainable at all.
It has also not yet been proven that Proof of Burn works on a large scale. Only small blockchains still use Proof of Burn. So time must tell whether this algorithm really works that well in practice, when used by the larger blockchains.
As a final disadvantage, we would like to mention that the burning of the coins is a process that is not always transparent. It is difficult for outsiders to see what is actually happening. And that is something that blockchain was developed for. Blockchain wants to offer more transparency in a world where this is difficult to achieve.
What is the difference between Proof of Burn and Proof of Stake?
There are people who compare Proof of Burn and Proof of Stake. That is not surprising, because these two algorithms show best similarities with each other. The main similarity is that both algorithms allow users to deposit money. With Proof of Stake, however, the deposit is a kind of deposit. As long as participants abide by the rules and do their best, they will get their investment back.
But with Proof of Burn, users have lost the investment. Once they burn a coin, they won’t get the coin back. That is the biggest difference between Proof of Burn and Proof of Stake.
What is the difference between Proof of Burn and Proof of Work?
Proof of Burn and Proof of Work also show similarities. However, the biggest difference is that many users waste energy with Proof of Work, while with Proof of Burn this does not happen in a direct way. The work that participants deliver in a blockchain with Proof of Burn has never been in vain. Energy will therefore always be used correctly.
At Proof of Work there is only one winner. This means that there are many participants who are working for nothing. That costs a lot of (wasted) energy.
Thanh Lanh Tran(1989) is Chief Editor from BitcoinUSD.com