Blockchain is a structure in which every data to be processed is encrypted and stored in a structure called a block at certain intervals, in each new block there is a summary of the previous block, and all this data is stored in more than one data storage point. Blockchain provides immutability, confidentiality, security, and transparency. There is no central authority to verify transactions on a blockchain. Because all transactions on a blockchain are executed if they are completely secure and verified. An essential part of every blockchain, the consensus protocol ensures that transactions are secure and verified.
Proof of Burn (PoB) is a consensus algorithm implemented by a blockchain network to ensure that all participating nodes agree on the state of the blockchain network. PoB is used to avoid the possibility of Double Spending. There are many versions of PoB, but Iain Stewart's concept of PoB is the most widely accepted consensus in the cryptocurrency ecosystem. PoB is a type of Proof of Work (PoW) consensus mechanism. Consensus mechanisms handle securing the network and verifying and validating transactions. Basically, PoB is similar to PoW. However, PoB consumes less energy than PoW. PoB is a consensus mechanism that encourages miners to burn a certain amount of cryptocurrency to receive block rewards in order to reduce the amount of cryptocurrency in circulation and increase the value of the remaining amount.
How Does Proof of Burn (PoB) Work?
PoB requires miners to burn cryptocurrency. Miners earn the right to create blocks based on the amount of cryptocurrency they burn.
For example, there are 6 miners with their own transaction blocks. Miners must burn some cryptocurrency to add their blocks to the network. They send cryptocurrencies to a burning address that anyone can see. The cryptocurrencies sent to the burning address become inaccessible and unusable.
Proof of Burn (PoB) has the following advantages:
- Less energy consumption,
- It encourages miners to make transactions regularly using cryptocurrencies,
- More sustainable,
- Block confirmation processes of the networks do not require powerful computing and mining hardware like ASICs.
What Is the Difference Between Proof of Burn (PoB) and Proof of Stake (PoS)?
One of the common features of PoB and PoS is that you have to make a deposit to become a validator. In PoS, you stake cryptocurrencies to become a validator. Validators who want to exit the network can withdraw their cryptocurrencies and sell them on the market. Thus, there is no permanent market shortage in PoS. Cryptocurrencies are removed from circulation for a while, not permanently. In PoB, on the other hand, block validators have to permanently remove cryptocurrencies from circulation, which positively contributes to the amount in circulation.
