cryptoAcademy - Homework for Week13:Consensus Algorithms by @alphafx

Hello everyone,

I am very excited to be a part of the lecture by @alphafx. The lecture was short and straight to the point . I will be talking about Proof of Burn

https://pixabay.com/photos/fire-flames-fire-wood-campfire-2197606/

PROOF OF BURN

We need to understand what burning in cryptocurrency means before we can clarify what proof of burn is.

BURN IN CRYPTOCURRENCY
To burn a coin means to take it out of circulation completely, effectively reducing the total supply of that coin. Burned coins cannot be retrieved because they have been withdrawn from circulation.
Burning entails sending coins or cryptocurrencies to an address or account (eater address) that cannot be reversed due to the login key being private OR the wallet being inaccessible.

MEANING OF PROOF OF BURN (PoB)
Since burning coins is a costly but necessary operation, miners typically earn some kind of compensation and rights on the blockchain. They are often given the ability to add further blocks to the proportion of coins lost. A burnt coin must be sent to a validated unspendable address, that is, an address that cannot use burnt coins for any transaction and from which burnt coins can never be recovered. This raises the question of what proof a miner might provide to prove that the coins in their possession have been burned.
The idea of "proof of burn" arose from this topic.
The act of destroying a cryptocurrency (irrevocably and irreversibly) in a verifiable manner (evidence/proof) is known as proof of burn.
Although merely burning a coin isn't enough, proof of burn in cryptocurrency allows cryptocurrency miners to prevent a coin's circulation (burn) in a verifiable manner (display evidence). The evidence of burn eliminates the risk of double-spending a cryptocurrency. As noted by Kenton (2020) in his Investopedia article, it is one of the consensus mechanisms algorithms used by blockchain communities to make sure that all nodes involved in the blockchain come to terms with the originality and binding agreement with the blockchain network.
The evidence of burn renders lost cryptocurrencies unusable or bootstraps them for use in another currency.

REASONS FOR BURNING CRYPTOCURRENCY

MINING POWER: As users burn coins or cryptocurrencies on purpose, they demonstrate their contribution to the mining process and their mining strength. A user's mining power increases as they burn more coins.

PROFIT: When a business creates a new coin, it burns it to make it less available. Low supply raises demand, inadvertently raising the price of a coin/currency, according to simple economics. As a result, the coin's price tends to increase in value in the long run or near future, resulting in increased profit. Miners may also be required to burn coins in a specific currency in exchange for coins in the blockchain's native currency..

BUILD A BLOCKCHAIN: Most users burn their coins on purpose in order to invest in the blockchain network, which maximizes profit and aids in the development of the blockchain network. It also demonstrates that such users accept the blockchain network's binding agreement and its uniqueness.

DESTRUCTION OF COINS/TOKENS: In some situations, it may be useful to destroy some coins, this is so when tokens/coins designated for sale were not sold or could be a blockchain requirement for fair play.

HOW PROOF OF BURN WORKS

• A user (miner/person in possession of a coin) must send their coin to the EATER ADDRESS which is a verified public account. The addresses of the eaters must be public and verifiable (without a private key).
• Because the log in key is private, when a coin is transferred, it cannot be reversed.

PROJECTS USING PROOF OF BURN

Counter party [XCP]
Counterparty (XCP) is the native currency of Counterparty – a peer to peer platform built on Bitcoin blockchain.
Slim coin [SLM]
This is the first known currency to adopt the proof of burn concept.
Triggers [TRIG]This coin is linked to the US Army. This currency is designed decentralize infrastructures used in defence technology.
Chancecoin
This coin is currently not in circulation. However, it is the first decentralized coin designed for casino transactions on the blockchain.

COMPARISON BETWEEN PROOF OF BURN, PROOF OF WORK & PROOF OF STAKE

The proof of work protocol in cryptocurrency allows users to mine cryptocurrencies (a cryptocurrency transaction validation process); thus, while the proof of work process allows users to generate cryptocurrencies, the proof of burn process allows users to permanently dispose of cryptocurrencies.
In cryptocurrency, the proof of stake model allows for transaction verification without relying on the mining process. The proof of stake model assigns individuals in possession of coins to a block based on the amount of coin they are willing to stake into a mining network for a set period of time during which they will be unable to access these currencies. Users may receive rewards based on the amount staked at the end of the stake period.
The proof of work process uses a lot of energy, whereas the proof of stake process uses less compared since it uses virtual mining rigs more; however, the amount of energy required for proof of burn is negligible when compared to PoW and PoS.
Here is a simple building construction analogy:

• Proof of work and proof of stake is the building process (building usually takes time, and resources).
• Proof of burn is the destruction process (destruction usually takes less time and resources).

The proof of stake and proof of work processes generate more currencies, whereas the proof of burn process removes currencies from circulation. Furthermore, both proof of stake and proof of burns require some level of interaction with cryptocurrencies to secure the network; however, coins locked through the proof of burns protocol are permanently deleted from the blockchain, whereas coins locked through the proof of stake protocol are temporarily locked out with expected returns at the end of the period. The proof of burn concept is intended to reward long-term investments and risk taking rather than short-term investments and wealth, as is the case with the proof of stake.

Conclusion

Proof of burns, though, an unpopular choice in consensus algorithms is a secure, energy efficient and profitable way to contribute to blockchain.
Thanks to @alphafx for his quality lecture on this.