Steemit Crypto Academy Week 13: Homework Post for Crypto professor @alphafx | Consensus Algorithm- Proof of Burn
Hello, Steemians. It's another week at the Steemit crypto academy and I've read the lecture by the crypto professor @alphafx. The task associated with the lecture would be discussed in this post as I will be talking extensively on "Proof of Burn (PoB)".
What is Consensus Algorithm
Consensus Algorithm in blockchain means the mechanism that enables an agreement on a single data value throughout every parts of a system. And with this, it enables all parts of the system to come in agreement with a common output to achieve an achievable trust even when there are presence of untrusted parts involved in the whole system.
Different blockchains have their individual consensus algorithm employed and in the case of the Ethereum blockchain, the consensus algorithm employed is the "Proof of Work (PoW)", Tron blockchain employs the consensus algorithm "Delegated Proof of Stake". While we have the likes of Bitcoin and Litecoin also employs "Proof of Work (PoW)" and so on.
Proof of Burn
Proof of Burn (PoB) consensus algorithm is another form employed by blockchain networks and in this case, Proof of Burn works in such a way that miners on the network burn cryptos on the network to reach a consensus. This type of consensus algorithm involves completely wiping away some cryptos from the network by burning to reach a consensus on the network. Proof of Burn (PoB) is a consensus algorithm that is targeted at correcting the problem of high energy consumption as seen in other blockchain consensus algorithm.
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In Proof of Burn "PoB" consensus algorithm, different nodes of the blockchain network achieve an agreement to confirm a valid state in the network by completely burning and eliminating the cryptos completely in the network to come to a cordial agreement.
Key features of Proof of Burn (PoB)
- Proof of Burn (PoB) is associated with less energy consumption as compared to other consensus algorithm like Proof of Work (PoW) and Proof of Stake (PoS).
- The means of investment on a network that uses the consensus algorithm "Proof of Burn" involves burning some assets on the network.
- In Proof of Burn (PoB) consensus algorithm employed by a network, miners are eligible as a valid miner on the network by burning their assets and that qualified them for transaction validation on the network.
- Proof of Burn (PoS) consensus algorithm-based does not involve complex computational resources or the use of high power requirement mining equipments. As a miner on the network, your eligibility solely depends on your asset burning capacity.
How Proof of Burn (PoB) works
In the Proof of Burn (PoB) consensus algorithm-based network, miners are required to send certain amount of the coins to an address (eater address) that is verifiable and on this address, the coins can't be accessible and it's completely valueless where it's sent. The address to which these coins are sent to, is completely out of reach as the address has no private key to it and with that, it's completely useless and inaccessible in there.
The process of burning one's asset on a network that employs the Proof of Burn (PoB) consensus algorithm makes the coin to be scarce in the cryptospace thereby creating scarcity, and scarcity of an asset definitely comes with an improved value. With this, the price of the asset increases and it's also a way of ensuring security on the network.
And in return for the burnt coins, miners are given block rewards based on the amount of the coins burnt that would assign blocks to be validated to them and in the process earn on the network. In short, Proof of Burn (PoB) consensus algorithm on a network that uses it, is a way of investment done by burning some assets.
Cryptocurrencies that Uses Proof of Burn (PoB)
Slimcoin (SLM): This is a cryptocurrency that uses the Proof of Burn (PoB), Proof of Work (PoW) and Proof of Stake (PoS) for the creation of the token and as well use Proof of Burn (PoB) to burn the crypto.
Factom (FCT): This is a cryptocurrency that uses the Proof of Burn to burn the FCT coins to thereby create scarcity. The network constantly mint new coins and also burn it off.
Counterparty (XCP): XCP crypto is created through the Proof of Burn (PoB) whereby users send Bitcoin to a verifiable address (where the Bitcoin isn't accessible) and in return get Counterparty (XCP) coin.
Comparing Proof of Burn (PoB) and Proof of Work (PoW)
| Proof of Burn (PoB) | Proof of Work (PoW) |
|---|---|
| Miners are required to solve computational puzzles | Miners burn coins as a means of mining |
| Block rewards are given based on the number of computational puzzles solved | Miners are rewarded with blocks based on the amount of coins burned |
| High cost of mining | Low cost of mining |
| High energy consumption | Low energy consumption |
Advantages of Proof of Burn (PoB)
- The energy consumption in Proof of Burn (PoB) is very low. It doesn't consume high energy as seen in other consensus algorithm.
- The process of mining through the Proof of Burn (PoB) consensus algorithm is very easy as it is done virtually without setting up high energy consuming mining equipments.
- It helps to strengthen the value of the cryptocurrency that uses this consensus algorithm.
- It allows the distribution of cryptos on the Proof of Burn (PoB) consensus more fairly done and fully decentralized.
Disadvantages of Proof of Burn (PoB)
- This investment type is risky as the recovery of the initial amount of the crypto burned isn't ascertained of in full returns.
- Users with higher capital to burn assets have higher chances of getting block rewards leaving users with low capital with little block rewards.
Conclusion
The Proof of Burn (PoB) consensus algorithm comes with less energy consumption and ease of operation, and as good as it sounds, there are disadvantages associated to it which every investors should be aware of, to be sure of the investment they are going into. I appreciate crypto professor @alphafx for this wonderful lecture.
Regards;
Cc: @alphafx
Thanks for participating
Thanks for the review.