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Proof of Burn Consensus Algorithm in Blockchain

Blockchain is the backbone technology of digital cryptocurrency Bitcoin that allows digital information to be decentralized and distributed. It provides immutability, privacy, security, and transparency. In Blockchain no central authority is present to validate and verify the transactions, yet every transaction in the Blockchain is completely secured and verified. The transactions are considered to be secured and verified because of the consensus protocol which is a core part of any Blockchain network.

Consensus Algorithm: A consensus algorithm is an algorithm or we can say a procedure through which all the peers of the Blockchain network reach a common agreement about the present state of the distributed ledger. In this way, consensus algorithms help to achieve reliability in the Blockchain network and establish trust between unknown peers in a distributed computing environment. It makes sure that every new block that is added to the Blockchain is the one and only version of the truth that is agreed upon by all the nodes in the Blockchain.

Proof of Work (PoW): Bitcoin uses a PoW consensus algorithm. This algorithm is used to select a miner for the next block generation. The idea behind this algorithm is to solve a complex mathematical puzzle that requires a lot of computational power and easily gives out a solution. Thus, the node that solves the mathematical puzzle as soon as possible gets to mine the next block.

Proof of Burn (PoB): With PoB, instead of investing in expensive hardware equipment, the validators follow the following approach:

While PoB is an interesting alternative to PoW, the protocol still wastes resources needlessly. It is also questioned that mining power simply goes to those who are willing to burn more money.

Why Proof of Burn Required?

There were some drawbacks in the PoW consensus algorithm which made researchers work towards a new consensus algorithm i.e PoB.

How PoB Works?

  1. As the name itself suggests, there is something which should be burned. Here as we are talking in the context of virtual currency so it’s obvious that in PoB virtual currency is burned. The more the currencies are burned by miners the more they have the power to create blocks.
  2. By burning we don’t exactly mean burning. It means not using that coin. This may be done if it is sent to somewhere where it can’t be spent. So miners send these coins to such addresses from where they can’t be used. It is sent to a public verifiable address where it cannot be accessed and thus can not be used.
  3. When the coin is burnt its availability decreases leading to a potential increase in the value of the coin.
  4. Now the question is why do we need to burn the coin? The basic explanation for this is that by destroying the currency, the consumer is displaying a big commitment to the currency by foregoing a narrow profit in exchange for a long-term profit.
  5. To avoid any undue advantages for early adopters, the PoB has devised a method that allows for the periodic burning of crypto coins in order to maintain mining capacity. Any time a fresh block is mined, the energy of burned coins decreases slightly.
  6. It is a deflationary idea in which the quantity of currencies reduces over time, increasing deficiency and, as a result, the currency holders’ value. Coins that grow their quantity over time, on the other hand, tend to lose value.

Proof of Stake (PoS):

Another commonly used consensus algorithm is PoS (Proof of Stake). This is the most common alternative to PoW. In this consensus algorithm, instead of investing in expensive hardware to solve a complex mathematical puzzle, the validator uses the following approach:

Thus, PoS encourages validators through an incentive mechanism to reach an agreement.  It doesn’t use hash functions, it uses digital signatures as the proof of ownership of the coins. Block forgers or minters are used for the validation of new blocks. The forger who puts more coins at stake has a greater chance to be selected as the block validator. There are no block rewards in the PoS system.

Advantages of PoB Over PoS: In Pos blockchain, market scarcity is not permanent. The scarcity is only for a certain amount of time i.e. until the forger stakes their coin which is usually done by locking them up. But the coins come back into circulation if the forger who is leaving takes those coin and sell them in the market. While in the case of PoB the coins are destroyed thus the scarcity is permanent.

Advantages of PoB:

Disadvantages Of PoB:

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