So let's get started:-
Write on any of these consensus algorithms extensively
Stellar Consensus Protocol
Proof of Capacity
Proof of Burn
Proof of Elapsed Time
So in this post I will choose proof of burn and I will explain extensively this.
But before this, let's yake a look what a consensus and consensus algorithm
Consensus algorithm is made up of two words. Consensus and algorithms.
Consensus means :- accord and algorithm means:- instructions that can be implemented and understandable by computer
So on this basis we can say that, consensus algorithm are series or sequence of codes that are accepted by and implemented to computer.
These are backbone of blockchain technology. As this maintain the integrity and data stored in any blockchain.
This algorithm confirms transaction, create blocks and confirm those too and it also keep the nodes for check.
These are also used as a reward system for nodes. By using this reward is distributed.
Now let's understand proof of burn.
Proof of burn is a mechanism designed specifically for blockchain. And the main motive behind its creation was to make rewarding system more efficient and validate the transaction more efficiently.
This is the creation of Iain Stewant whi worte it's algorithm and make people understand about it.
In this process, a miner sends it's cryto asset to a un-spendable and untraceable address from where no one can access those assets and assets are deemed to be burnt. And no-one can use that assets unlike proof of stake where miner can unstake their assets later.
But those un-spendable and un traceable address must be verified and the transaction must also be verified by another node to confirm that transaction has beed made and the asset is burnt.
Now the question arises why would someone just burn their coin.
This the most important question why would someone do that. Because there must be some advantages for miner that's why they do that.
So every time miners burn their assets, they are granted the right to write a block on that blockchain.
Higher the number of burnt coin, higher the number of new block and when new blocks are generated reward for new coins is also increased.
So when any miner burns their assets, they get a right to write a new block. This is very efficient in terms of energy save. When a miner writes a new block in proof of stake, it requires a high amount of energy but in case of proof of burn, it requires a very less amount of energy required to write a new block.
How proof of burn is equivalent to dividend of real world:-
In real life, we all must have been heard about dividend. Its a part of profit that is provided by a company to it's shareholders of stick with it.
For example, I own a company and let's assume in the quarter of jan-march my company makes a profit of around 10 mn USD. And there are around 1 mn shares issued by the company. And central authority of my company decide to distribute 20 percentage of company's profit that is around 2 mn USD among the investors or shareholders.
So with calculation, every share gets 2 USD of profit. So every person who owns the share of my company will get 2 USD for every share he/she hold.
In the cryto world, this is done using proof of burn.
Every year binance distribute 20 percentage of its profit among the person who owns binance coin. But unlike real world this is qhite hard to send money directly into the wallet of those.
So to overcome this, proof of burn is done. In this, binance every year burn the binance coin that amounts the 20 percentage of their annual profit.
By this, supply demand curve is shifted leftward and the price of the coin is increased. And everyone who holds the coin get benefits.
Advantages and disadvantages of proof of burn:-
- In this, energy required is very low as compared to proof of work where a big amount of energy is required.
Thus we can say that proof of burn is eco friendly. In today's world this is more important as we have seen recently that Tesla denied the payment through bitcoin only on this basis that it requires a high amount of energy and tesla is eco friendly.
- Burning coin reduces the number of coins in circulation and it makes the remaining coin more costlier. Thus it is used as dividend in cryto world.
- Burning is done virtually and thus not many equipment is needed for a miner to get reward. It reduces the money that is needed to invest.
- It is also used to develop new coins by writing block after burning coins. Thus coins that are not sold through ICO can be developed on a blockchain. This process is called bootstrapping as in this that coin is developed wholely by personal savings.
- Many coins that are burnt in this process are mined through proof of work. And this process is not eco friendly. So the process of proof of burn is eco friendly but when we look at the whole process , we get to know that this is wholely is not a eco friendly process.
- This process is not yet well spread. And many new miner that are new in this area has a lot of problems while doing this.
proof of burn vs proof of stake
Proof of burn and proof of stake are similar yet quite different. In both of them miner lose their assets to get reward. But the main difference is that one is permanent and latter is temporary.
As the name suggests, in proof of stake, miner stake it's assets and then gets right to write a block and then gets reward. And those staked coins can be unstaked by miner and miner gets them back.
But in proof of burn, the scene is quite different. In this miner burns it's assets and then get right to do the same and the process of burn is permanent. Once those assets bare burnt, those can't be returned or withdrawn by anyone.
proof of work vs proof of burn
In proof of work, miner solves a very complex equation that is called cryptographic equation. This requires a very high end computer and a lot of energy. And after this miner gets reward.
But in case of proof of burn, miner doesn't need any high end computer system and also doesn't need much energy for the same. Because in here, no amount of energy is wasted in solving complex equation.
So that's all from my side. Hope you all like it.