While most blockchain systems commonly use Proof of Work (PoW) and Proof of Stake (PoS) consensus algorithms, Proof of Burn (PoB) has gradually become a possible alternative to the above algorithms.

In general, the blockchain consensus algorithm is responsible for protecting network security and verifying transactions.

The scenario in a proof-of-work blockchain, such as Bitcoin, is that miners compete with each other and find efficient solutions to complex cryptographic problems. The first miner to find the solution to a block broadcasts his proof of work (block hash) to the network, and the distributed network of nodes will verify whether the proof is valid. If valid, the miner has the right to permanently add the block to the blockchain and be rewarded with newly generated Bitcoins.

When we talk about proof-of-stake blockchains, the consensus algorithm works in a different way. The proof-of-stake algorithm does not use a hash function, but uses a digital signature to prove ownership of the coin. The verification of new blocks is done by people called block "forgers" or "coiners", who are selected in a deterministic way. The more coins a forger owns, the greater the chance of being selected as a block validator. Unlike proof-of-work systems, most proof-of-stake systems do not provide block rewards. The rewards forgers receive from validating blocks are transaction fees.

Although the proof-of-burn algorithm has certain similarities to proof-of-work and proof-of-stake, it has its own specific way of reaching consensus and validating blocks.

Proof of Burning (PoB)

There are many versions of the proof of burning algorithm, and it was proposed by Iain Stewart The version may be the most recognized by the public in the field of digital currency. It is considered a sustainable alternative to the proof-of-work algorithm.

Essentially, proof-of-burn looks like a lower-energy proof-of-work algorithm. Because proof-of-burn block verification does not require a large amount of computing resources or rely on powerful mining hardware (such as ASIC). In contrast, digital currency is intentionally destroyed (burned) as a way of "investing" in the blockchain so that candidate miners do not need to invest physical resources. In a proof-of-burn system, miners invest in a virtual mining platform (or virtual mining power).

In other words, by destroying digital currencies, users can prove their investment in the network and gain the right to "mining" and verify transactions. Since the process of burning coins represents virtual mining power, the more coins a user burns in the system, the more (virtual) computing power he/she has and therefore the higher the chance of being selected as a validator for the next block. .

How does proof of burning work?

To put it simply, the burning process involves sending the currency to a publicly verifiable address, where the currency can no longer be spent. Typically, these addresses are randomly generated addresses without a private key. Of course, the process of burning coins reduces market liquidity and creates scarcity, leading to a potential increase in their value. But more importantly, currency burning is another way to ensure network security.

One of the reasons why proof-of-work blockchains are secure is that miners need to invest a lot of resources in order to ultimately make a profit. This means that miners are incentivized to help the network honestly to prevent the initial investment from being wasted.

This idea is similar to the proof-of-burn blockchain, but the proof-of-burn blockchain does not invest in electricity, labor and computing power. It only ensures security by burning currency.

The proof-of-burn system will provide block rewards to miners, and over a certain period of time, it is expected that this reward will include the initial investment of burned currency.

As mentioned earlier, there are different ways to implement proofs of combustion. Some projects burn Bitcoin, while others implement proof-of-burn by burning their own native digital currency.

Proof of Burn VS Proof of Stake

One thing that Proof of Burn and Proof of Stake have in common is the block validator One must invest their digital currency in order to participate in the consensus mechanism. However, Proof of Stake requires miners to turn their coins into shares and typically lock them up. But if they decide to leave the network, they can take the digital currency and sell it on the market. Therefore, there is no permanent market scarcity in this case, as the currency is only uncirculated for a certain period of time. Proof-of-burn block validators must permanently destroy their digital currency, creating permanent economic scarcity.

Proof-of-Burn Pros and Cons

The pros/cons listed below are based on Proof-of-Burn proponents General arguments and should not be considered proven facts. These arguments remain controversial, and further testing is needed to confirm their validity.

Advantages

• High sustainability and reduced energy consumption.

• No mining hardware is required, and virtual mining machines are used for currency burning.

• Cryptocurrency burning reduces circulating supply (market scarcity).

• Encourage miners to invest in the long term.

• Digital currency distribution/mining is more decentralized.

Disadvantages

• Burning proves not to be truly environmentally friendly as it is burned of Bitcoins are generated through proof-of-work mining, which requires a lot of resources.

• It has not been proven to work on larger-scale blockchain networks. More testing is needed to confirm its efficiency and safety.

• The verification work of miners is often delayed. It is not as fast as proof-of-work blockchain.

• The process of burning digital currency is not always transparent or easily verifiable by ordinary users.