What is Proof-of-Burn?
Proof-of-Burn (PoB) is a consensus mechanism used in some cryptocurrencies to determine which nodes (miners) are eligible to create new blocks and add them to the blockchain. PoB is an alternative to the more commonly used consensus mechanisms such as Proof-of-Work (PoW) and Proof-of-Stake (PoS).
In PoB, a miner must "burn" a certain amount of their cryptocurrency by sending it to an unspendable address, essentially destroying it, in order to prove their commitment to the network and become eligible to mine a block. The amount of cryptocurrency that must be burned is determined by the network's rules, and can vary depending on the specific implementation of PoB.
The idea behind PoB is that by burning their cryptocurrency, miners demonstrate a long-term commitment to the network and are incentivized to act in its best interests, as their burned coins can never be recovered. This is in contrast to PoW and PoS, where miners and validators may have a financial incentive to act maliciously or selfishly.
PoB has been used in a number of cryptocurrencies, including Slothcoin and Counterparty. However, it is less commonly used than PoW and PoS, and its effectiveness as a consensus mechanism has been the subject of debate within the cryptocurrency community.
Simplified Example
Proof-of-burn can be compared to burning a ticket to enter a special event. Just like how you might burn a ticket to enter a special event, in proof-of-burn, you "burn" some of your cryptocurrency to prove that you're serious about a new cryptocurrency.
Imagine you and your friends want to go to a special event, and the only way to get in is by burning a special ticket. So, you each burn a ticket to show that you're serious about going to the event. This is similar to what happens in proof-of-burn. To prove that you're serious about a new cryptocurrency, you "burn" some of your existing cryptocurrency by sending it to an address where it can never be spent.
So, just like how you burn a ticket to enter a special event, in proof-of-burn, you "burn" some of your cryptocurrency to prove that you're serious about a new cryptocurrency. And, just like how burning a ticket proves that you're serious about going to the event, "burning" some of your cryptocurrency proves that you're serious about a new cryptocurrency.
History of the Term Proof-of-Burn (PoB)
The term "Proof-of-Burn" (PoB) was first coined by Iain Stewart in a 2012 post on the popular Bitcoin forum, Bitcointalk. Stewart proposed PoB as an alternative consensus mechanism to Proof-of-Work (PoW), addressing concerns about the energy consumption and environmental impact of PoW-based cryptocurrencies.
Examples
Counterparty: Counterparty is a decentralized platform that uses a proof-of-burn consensus mechanism. In proof-of-burn, tokens are burned, or permanently destroyed, to secure the network and validate transactions. In Counterparty, users must burn a portion of their XCP tokens to participate in the network and help secure it. The proof-of-burn mechanism provides a decentralized and secure way to validate transactions, as well as ensuring that the supply of XCP tokens remains limited.
Slimcoin: Slimcoin is a cryptocurrency that uses a proof-of-burn consensus mechanism. In Slimcoin, users must burn a portion of their SLM tokens to participate in the network and help secure it. The proof-of-burn mechanism provides a decentralized and secure way to validate transactions, as well as ensuring that the supply of SLM tokens remains limited.
Primecoin: Primecoin is a cryptocurrency that uses a proof-of-burn consensus mechanism. In Primecoin, users must burn a portion of their XPM tokens to participate in the network and help secure it. The proof-of-burn mechanism provides a decentralized and secure way to validate transactions, as well as ensuring that the supply of XPM tokens remains limited. Primecoin's proof-of-burn mechanism is designed to promote energy efficiency, as it requires less computational power than other consensus mechanisms, such as proof-of-work.