Proof of Burn (PoB) is a method for earning rights on a blockchain by permanently destroying coins. A participant sends coins to a burn address, an address from which nobody can ever spend, and the verifiable loss becomes evidence of commitment. Depending on the design, that evidence buys a chance to produce blocks, as in a consensus mechanism, or a share of a new token, as in a distribution scheme.
PoB was proposed as an alternative to Proof of Work (PoW): rather than spending electricity and hardware, a participant spends coins. The Bitcoin Wiki credits the best-known decentralized design to a writer named Iain Stewart. PoB is distinct from ordinary token burning, where a project destroys its own tokens to cut supply; in PoB, the burner expects something back for the coins it destroys.
Proof of Burn in plain terms
Imagine a club where the right to chair the next meeting goes to members who have publicly thrown money into a sealed well. Nobody can fish the money out, and everyone saw it go in. The bigger and more recent your throw, the better your odds of being picked. The club does not need to check your character; the lost money shows you are serious and gives you a reason not to wreck the club you have paid to help run.
PoB applies that idea to a ledger. The coins sent to the burn address are gone for good, and the public record of the burn works like a ticket. It replaces the real-world cost of running mining machines with a cost paid in coins.
How Proof of Burn works
A burn address is built so that no private key for it is known or can practically be found. A common technique is to choose an address string that is valid in format but was clearly not derived from any key, such as one that spells out a word followed by a run of placeholder characters. Once coins are sent there, every full node can see that they can never move again.
In the consensus form described on the Bitcoin Wiki, each burn acts like a virtual mining machine:
- A burn must be old enough to be safe. The design asks that burns wait a long period before counting, so a chain reorganization cannot undo the burn after the burner has collected rewards.
- Its power decays over time. The weight of a burn shrinks as blocks pass, so a participant who wants to keep producing blocks has to keep burning, much as a miner must keep buying and powering hardware.
- Block producers are chosen at random, weighted by burns. Candidates with more effective burned coins are more likely to be selected to add the next block and collect its block reward and fees.
Examples
The best-known use of PoB was a token distribution rather than a full consensus system. Counterparty, a platform that records its own transactions on the Bitcoin Blockchain, created its native token XCP through a proof-of-burn period that ran from 2 January to 3 February 2014, about 5,000 Bitcoin blocks. Participants sent Bitcoin (BTC) to the unspendable address 1CounterpartyXXXXXXXXXXXXXXXUWLpVr and received between 1,000 and 1,500 XCP per bitcoin, with earlier burns earning more. Each address was capped at 1 BTC. Because the whole supply came from public burns, the method was presented as a way to launch a token without a pre-sale or an Initial Coin Offering (ICO).
Slimcoin, a small coin launched in 2014 and based on Peercoin's code, used PoB as part of its consensus together with PoW and Proof of Stake (PoS). In Slimcoin, a participant's chance of finding a block depends on an "effective burnt coins" score that decays over time. Other burn-based schemes exist, but none has become a major network.
Strengths and criticisms
Supporters argue that PoB avoids the energy use of crypto mining while keeping a real cost of participation, which helps defend against cheap attacks. It also ties a new coin to the value of an older one, since burning bitcoin to obtain a new token is a costly, public signal.
Critics point out several problems:
- Waste in another form. Destroying coins removes value from holders, and when PoB burns bitcoin, the energy that secured those coins is still spent, only on another chain.
- Advantage to the wealthy. As with PoS, those with more coins can burn more and win more often, which can concentrate control.
- Bootstrapping. A chain that requires burning its own coin needs some other way to issue the first coins, which is why many PoB designs burn coins from an existing chain such as Bitcoin.
- Limited testing. Very few networks have relied on PoB for security, so it has far less real-world evidence behind it than PoW or PoS.
PoB is usually listed alongside other alternative designs such as Proof of Authority (PoA) and hybrid PoW/PoS consensus. Burns also affect tokenomics: every burn shrinks circulating supply and adds to a network's burned supply, which some holders view as supportive of price and others as a cost borne by the whole network.