What it means
In a blockchain, the network needs a way to stop dishonest participants from creating blocks at will. Proof of work does this by making the creation of blocks expensive in electricity, while proof of burn makes it expensive in coins.
A participant who wants to take part must give up something valuable first. The process is simple in outline.
A participant sends coins to a verifiably unspendable address, often called an eater address or burn address, and the transaction is recorded on the blockchain for anyone to see. The more coins burned, the greater the chance of being selected to produce the next block and earn the reward.
The logic is similar to buying a lottery ticket that you can never sell back. Burning shows that you have a stake in the system's success, because you will only earn back your sacrifice by behaving honestly over time and collecting rewards.
Many designs let the weight of a burn fade as time passes, so that early burners cannot dominate forever. This means participants must keep burning new coins to stay in the game, which keeps the system open to newcomers but also raises the long-term cost of taking part.
There are criticisms. Burning coins wastes real value, it favours people who already hold plenty of coins, and some designs burn a different coin, such as one from another blockchain, to bootstrap a new one.
Coin burning is also used for another purpose entirely, to reduce supply and support price, so you should check which sense is being discussed.
In practice
Real-world examples.
Example
A small blockchain project invites participants to burn its tokens to earn mining rights. A participant burns $2,000 of tokens and receives a chance of rewards proportionate to her share of the total burn.
Example
An entrepreneur compares costs for joining two networks. Mining on a proof of work chain would need $15,000 of equipment and electricity each month, while joining a proof of burn chain requires a one-off burn of $15,000 that fades over time.
Example
A researcher writes a report for a bank on blockchain security. She notes that proof of burn needs no specialist hardware but argues that the permanent loss of coins makes it an unusual choice for large payment systems.
Formula
Calculation
In a simple model, the chance of being chosen to produce a block depends on the share of total burned coins that you hold:
Selection probability = Your burned amount / Total burned amount (weighted for time)
Suppose you burn coins worth $5,000 and the total amount burned by all participants, after allowing for the fading weight of older burns, is $100,000.
Selection probability = $5,000 / $100,000 = 5%.
If the network produces 200 blocks a day, you would expect 5% x 200 = 10 blocks a day. If each block pays a reward worth $10, your expected income is 10 x $10 = $100 a day, and you would take $5,000 / $100 = 50 days to recover the cost of your burn, ignoring the fading of its weight.Case study
Seen in the real world.
Ironbridge Labs is an illustrative, fictional developer that wanted to launch a new blockchain without using much electricity. The team decided on proof of burn and gave each burn a weight that halved every three months.
Early participants burned significant amounts and earned most of the first blocks. The halving rule meant that, after a year, newcomers who burned smaller amounts could still compete because older burns carried little weight.
However, the community criticised the design because many participants felt they were paying to take part and were not sure of earning the money back. The team responded by adding a smaller second reward for steady participation. The illustrative lesson is that proof of burn replaces an electricity cost with a coin cost, and people judge both on whether the reward is worth the sacrifice.
Watch out
Common mistakes.
- Confusing proof of burn with the practice of burning tokens to reduce supply, which is a separate tactic used by some projects to influence price.
- Assuming burned coins can be recovered, when sending them to an unspendable address is permanent.
- Ignoring the fact that older burns lose weight in many designs, which makes the real cost of staying active higher than the first burn.
Questions
People also ask.
Why would anyone burn valuable coins?
They hope to earn more in block rewards over time than the value they destroyed, in the same way a miner spends on electricity expecting rewards.
Is proof of burn more energy efficient than proof of work?
Yes, because it does not require large amounts of computing, although it replaces that cost with the loss of coins.
Is proof of burn widely used?
It is much less common than proof of work or proof of stake and has mostly been used by smaller or experimental projects.
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