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Proof Of Burn Consensus Algorithm

08:15 14/03/2019
Proof Of Burn Consensus Algorithm

Introduction

 

The most popular approaches to achieve consensus without the decision-making delegation use rewards to incentivize participants. The simplest Proof-of-Work algorithm gives a reward for the block to a successful miner. At the same time, Proof-of-Stake is used to reward active participants in proportion to their frozen assets.

 

However, there are ways to achieve consensus without necessary rewards. For instance, the PBFT solution can use a limited number of privileged members who approve the author of a new block. Projects based on a blockless structure, like IoTa or Nano, rely on the guarantee of a general fair result as a reward to every particular participant. This result is received after successful transactions being approved by members. We are not considering these cases here.

 

Common Approaches

 

Let’s recall basic algorithms for achieving consensus and what they are used for.

 

Proof-Of-Work

 

Proof-of-Work is based on the node performance. The core activity of PoW is hash recalculation. The more hashing power is possessed by a node, the greater the chance to find a valid hash result and receive a block reward. This approach has a strict dependence between real money investments in mining facilities and the probability of getting a block reward. Another small topic here is mining rigs and mining pools. Regardless of a particular amount of pool participants or rig devices, they are still considered as one from the point of view of mining. For PoW in Bitcoin and Ethereum, mining and consensus achievement are the same.

 

Proof-Of-Stake

 

While PoW deals with performance, Proof of Stake is based on assets placed in a special locked space to get the right to propose a block. Here, participants are to use their on-chain assets to gain a new asset amounts. This is different from PoW since no real money is involved. This approach has a disadvantage — a certain degree of centralization. There should be some limited number of participants making decision about a successful miner.

 

Proof-Of-Capacity

 

This algorithm explained in the previous article also depends on the real life funds. Here, memory space is used to produce valid hashing results. Moreover, there are certain risks regarding centralization and the security of a winner.

 

Proof-Of-Burn

 

The Proof-Of-Burn algorithm depends on assets possessed by participants. In contradiction to other methods, this one uses crypto assets to prove the right to propose a new block. The basic idea of this consensus algorithm is that a miner should “burn” their coins by sending them to a certain verifiably unspendable address. This approach helps solve several problems:

 

  • Using on-chain assets allows restricting fund pressure on the less successful members in real life. Thus, people are more or less equal here.
  • There always exists a point of balance between the mining reward and the probability of a block proposal. One can either wait for a chance to mine a block that would bring a profit, or spend more assets without a significant mining reward (perhaps with money loss).
  • With appropriate mathematical modeling, such an algorithm can be applied in conjunction with global methods of controlling assets on-chain.

 

Implementation

 

There were several known examples of PoB implementation. Slimcoin is an experimental cryptocurrency created in 2014. Its authors tried to find a balance between asset burning and a long-term reward. As of March 2019, the cryptocurrency is active. Yet, other projects of this type seem to be deprecated.

 

Afterword

 

Proof-of-Burn uses an interesting approach to manage consensus achievement. It is based on the same assets that are received from mining. Naturally, this methods has both benefits and flaws. Still, it is an interesting alternative to other algorithms.

 

We will discuss the most interesting alternatives in our next articles.

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