What Is Proof of Burn (PoB)?
Proof of Burn (PoB) is a consensus mechanism that uses less energy consumption than Proof of Work (PoW). In order for miners to win the right to add a new block to the network, they must ‘burn’ a portion of their tokens by sending them to an unspendable address, known as an eater address.
How Does Proof of Burn (PoB) Work?
The concept behind PoB requires miners to burn some of their digital currencies for the chance to mine a new block. Burning makes assets deflationary, which protects the value of tokens while minimising their devaluation.
Known as burning, miners send tokens to an unspendable (eater) address, where they cannot be recovered or spent. Depending on how the PoB system is implemented, miners either burn the native token of the project or use an alternative currency.
Miners are then randomly chosen according to the number of tokens burned. The more tokens the miner has sent to the eater address, the higher the chances of being selected to mine the next block.
Because of its uniqueness, the PoB system is often used in blockchain projects that have exclusive tokens, as it actively protects them from inflation by limiting the supply. In doing so, it often attracts more long-term investors than short-term traders due to the stability in prices.
An example of a PoB concept is Counterparty (XCP), which uses a ‘burning’ mechanism for the creation of new tokens. In this case, users send bitcoins to the eater address in order to generate a proportional amount of Counterparty’s native token, XCP.