Evolving Past PoW and PoS Consensus Mechanisms - Proof of Burn


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Introduction: Why Proof of Burn (PoB)?

Looking at Proof of Work (PoW), well, we all know it provides a high degree of decentralization, but at the same time PoW displays high degrees of inefficiencies. Proof of Stake (PoS) consensus mechanisms are good at lowering chain operating costs (relative to PoW) and are more efficient, but at the same time PoS entrenches miners, displays an inability to resist exchange attacks, and utilize slashing conditions that can be characterized as complex and possibly unethical.

Blockchain technology is still searching for what would be the best of both worlds. Is there a consensus mechanism that can deliver the decentralization and security of PoW and at the same time deliver the efficiencies associated with PoS?

Proof of Burn

Where did Proof of Burn (PoB) come from?

Originally proposed back in 2012, PoB is the brainchild of Bitcoin Researcher at Imperial College London, Iain Stewart. Note that Stewart's PoB work came merely only one year following the PoS work of Buterin.

PoB's genesis actually came as a purely academic exercise - the exercise was an experiment to compare and contrast the differences between PoW and PoS consensus systems. Quoting Iain Stewart:

Proof-of-stake (of the "Cunicula variety", I mean) is in fact arguably already an example of such a task. It feels awfully expensive, to a miner, to save up a lot of bitcoins and become a big stakeholder; but from a whole-economy viewpoint, this is a swapping of assets' ownership labels around, it's not a burning of electricity or the like. However, I thought it would be interesting to invent a task that is absolutely, nakedly, unambiguously an example of the contrast between the two viewpoints. And yes, there is one: burning the currency!

[Wikipedia. Proof of Burn. (Accessed December 23, 2021)].

Nonetheless, the PoB system became accidently misplaced in time until recently where some see it as the 'holy grail' of consensus systems.

How Does Proof of Burn Work?


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In its most simple form, look at PoB being the opposite of what a country's central bank does - PoB destroys the currency whereas central banks print it. Likewise, where PoW burns electricity and hardware to reach consensus, PoB merely burns it's own coins to provide the incentive necessary for it to ensure it's nodes are good actors.

Miners in a PoB system are required to transmit coins to an unspendable address (a burn account). Based on the number of coins sent, the higher the number of coins sent improves the possibility the consensus algorithm will chose that miner to mine that block. If the miner validates the transactions and properly mines the block, the miner's coins are returned plus a reward. If not chosen or there is an improper mining, no reward is paid and the coins deposited are burned (and basically wasted).

The burning of more coins by a miner demonstrates an increased commitment to the system, which in addition to providing higher chances of being chosen to mine the block (like spending more electricity and hardware to mine a PoW block), also increases the probability the miner will be a good actor due to the increased value at stake. PoB viewed in this light shows PoB to be deflationary in nature. As the supply of coin decreases in the system, scarcity increases theoretically increasing the coin value adding additional incentives into the system.

A Quick Review of the Advantages and Disadvantages of Proof of Burn Consensus Mechanisms

Advantages of Proof of Burn
  • Does not require specialized hardware to operate.
  • The PoB consensus utilizes far less electricity than either PoW or PoS consensus systems
  • Theoretically, coin burning reduces the supply of it in the market, making it more scarce thereby increasing it's price.
  • Miners are motivated into a long term commitment to the consensus system.
  • An increased decentralized consensus system theoretically is incentivized.
Disadvantages of Proof of Burn
  • The process of burning coins in any ecosystem including a PoB consensus ecosystem is not transparent all the time.
  • There has been no large scale test of a consensus mechanism based on PoB and accordingly it's scalability remains untested.

Some Final Thoughts on Proof of Burn

In the absence of a large scale test using a Proof of Burn consensus, it remains unknown if it could meet the scalability requirements necessary to be a viable alternative to PoW or PoS systems. As such, at least for now, Proof of Burn remains an interesting academic exercise worthy of examination as a future alternative to cure deficiencies in the systems now utilized.

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