Steemit Crypto Academy, Season 2- Week 5 Homework Task for @alphafx

Hello everyone and happy Eid Mubarak in aerials to our Muslim faithfuls on Steemit. This week lecture is focused on “consensus algorithms”. From the lecture, I understood consensus algorithm to be a process that allows users on a blockchain to come to an agreement for a project to be executed. There are different types of consensus algorithms but my focus will be on the Proof of Burn (PoB) algorithm.

Understanding PoB Algorithm
Today, blockchain uses different consensus algorithms to execute projects. For example Bitcoin (BTC) uses Proof of Work (PoW), Slimcoin (SLM) uses PoB, and steem uses Proof of Stake (PoS) amongst others.

PoB is not commonly used but it came about as a better option to the PoW algorithm. It was created by Stewart Ian. However, despite Stewart’s innovation, presently, there exist different forms of PoB algorithms. But the one commonly used is the one created by Stewart Ian.

The various forms of consensus algorithms uses resources such as fossil fuel used by BTC in mining. We saw the news of recent by Elon Musk about BTC using fossil fuel in mining BTC, which to him is not friendly to the environment. This has greatly affected the price of BTC. PoB one could say is a remedy to this excessive used of energy. With the use of PoB, there will be minimal damage to the environment as the use of devices and mining equipments will no more be necessary.

PoB algorithm gives users some sort of loyalty towards the blockchain network. That is users are allowed to burned the initial coins they own and then put more effort to make coins again.

According to Stewart Ian when initial coins owned by miners are burnt, miners have the opportunity to have virtual hardware for mining. Thus, the more coins but, the more virtual hardware for mining.

How Proof of Burn Functions
With PoB, an address is created and given to miners to send coins to the said address. This address is unspendable but miners can verify the address. Let’s say a wallet is created for miners to send coins intended to be burnt. Miners are then allowed to burn alternative currency within the blockchain.
For example, they allowed miners to burn BTC and rewarded with another currency under the blockchain. The address given to miners to send the coins to be burned, the private keys are not accessible by miners. So, the keys are kept a secret but miners can verify the address.
The burning is recorded on the blockchain showing proof that the coins cannot be used again.

The reason for burning of the coins is to make the network more secured. The main preoccupation is to burn as much coins as possible. When this is done, the amount of crypto currencies in circulation will decrease and prices will increase.

For example at a particular period, BTC and BNB token are burned. After the burning period, the price of BTC increases as the burning process has reduced the amount of BTC in circulation. After this, price of BTC will increase.

Comparison of PoB and PoW
PoB and PoW have similar reward system to miners.
PoB allow miners to burn more crypto currencies. Miners are discouraged from using mining equipments and does not consume electricity. Those who burn crypto currencies, are rewarded and transactions on the blockchain are highly secured.
While PoW, miners are placed in a competitive arena. The security of the network is guaranteed by the more use of resources and electricity by miners. Miners are rewarded with crypto currencies after using more energy consumption.

Comparison of PoB and PoS Algorithms
Both PoB and PoS allow miners to own crypto assets before they can do the mining. With PoB, miners need to own crypto assets which is send to an unspendable wallet where it is burnt. So, initial crypto currency of miners is necessary and miners cannot have access to the currency to be burnt. While with PoS, a prerequisite to become a miner is that they need to lock crypto currency on the network and the currency cannot be removed.

Pros of PoB Algorithm

• It is environmentally friendly as it uses little energy in the mining process. Unlike BTC that consumes lots of fossil fuels in the mining process.
• It makes miners to be loyal to the network. This way it is protected and secured for profits.
• It increases price of crypto currency after the burning period.
• There is no extra cost for miners as they are not required to use mining equipments.
• Burning is done periodically in order to avoid unnecessary competition among miners.

Cons of PoB Algorithm

• It has not been used for long making it difficult to identify the problems PoB posed to miners.
• It is risky and nobody guarantees miners to recover the full amount of coins burned.
• PoB creates an environment for the rich to become richer and the poor become poorer. It enables richer miners to accumulate more.
• It uses resources though minimal to burnt coins which in the long run might equally cause havoc to the environment.

In sum, PoB is still to gain grounds and popular. Though it has recorded some disadvantages but is still advantageous as compared to PoW and PoS. Thanks for this week lecture. Regards

Cc: @alphafx