On Proof of Burn and other alternative algorithms

Hi everyone.

I’m Ray and I’ve recently finished an article about Proof of Work alternatives.

I’ve reviewed the following algos:

Proof of Stake
Proof of Activity
Proof of Burn
Proof of Capacity

Since Proof of Burn is one of them, I thought that you might take a look at my article and tell me what you think about it.

Part 1: https://bytecoin.org/blog/proof-of-stake-proof-of-work-comparison/
Part 2: https://bytecoin.org/blog/proof-of-activity-proof-of-burn-proof-of-capacity/

Would be glad to hear your comments and start a discussion!

1 Like

Just finished reading your article and i enjoyed it :smiley: My feedback has to pertain to this paragraph:

Thus, by ‘throwing away’ your coins, you get the rights for life-time mining, which is a lottery among the owners of burnt coins. Naturally, the more you burn, the higher your chances. It is like buying a virtual Proof-of-Work hardware, which never degrades. Or as a Proof-of-Stake deposit you cannot get back.

I feel that the term mining does not apply when referring to a proof of burn situation, as there is never any mining. As far as I know, XCP is the only crypto currency to use the proof of burn method so far, and after the BTC had been burned, all participants received XCP and that was it, no more XCP has come or will come into existence, so mining isnt used properly here. And by the more you burn the higher your chances are, also seems a little incorrect. It would be the more you burn the more XCP you received

That’s right.

But note that XCP servers might be (not that that is a plan) rewarded for “mining” (running) Smart Contracts. This still wouldn’t be “mining” as no new XCP’s would be made, but contract issuers and users may need to pay for this with XCP.
So in theory something like this would be possible. Maybe “farming” is a better (and in any case distinct) word for this that “mining”.

I agree, they way i took the article (and i could have interpreted this wrong) is that when you burn your BTC and receive the token that is earned via the burning mechanic, then if you had a higher burn percentage then you will continue to receive a higher amount of token when new ones are generated, when in fact no new tokens will be generated (at least in the XCP world, this is not to say that another cryptocurrency will not come around and do a similar proof of burn system and pay out more tokens to the higher burners).

And correct me if i am wrong, but when smart contracts are enabled, will they not work similar to the way assets are created in which the XCP will just be destroyed?

Not exactly - contracts need to be executed (to run) and them being executable on Counterparty server, they’d need Counterparty servers to run. Unlike the current transactions, which are executed on a server but then continue their life on the blockchain, Counterparty Smart Contracts would need to execute 24x7 (it depends on what the contract does, but many will run 24x7) so it will become essential to have a pool of servers that execute them on a continuous basis.

Then secondly, because not all Counterparty servers have enough power to execute dozens (or thousands?) of Smart Contracts at the same time, many today’s Counterparty servers wouldn’t be able to do that.

Bottom line is, it seems likely that Counterparty servers’ owners would have to be compensated in order to execute these. I hope this is how it’s going to work and that these will be paid for in XCP.


From my understanding all a Counterparty node does is to interpret Bitcoin txs, build the Counterparty DB and respond to API calls. Counterparty nodes do not connect to other nodes; this job is “outsourced” to Bitcoin Core.

Rewarding individual Counterparty nodes is therefore impossible. There was a proposal to reward XCP to Bitcoin miners. This is technically possible since the fee would go to the block’s coinbase address. The advantage would be that miners would have an incentive to prioritize Counterpartys txs. However, by burning the XCP fee instead, every XCP holder receives a proportional reward. (I read this discussion on Github a while back. I think they concluded with burning the fee. You should be able to find the discussion there.)

A typical Smart Contract will be very small. Check out the Ethererum contracts. Some seemingly advanced stuff … like a pyramid scheme :no_mouth: … takes surprisingly few lines of code. I wouldn’t be surprised if an ordinary laptop can run 100,000*+ contracts. The important part is that fees prevent attacks (such as infinite loops).

  • 100.000+ : Would be interesting to test. Maybe the Ethereum guys have done it?

It doesn’t connect to other nodes, but Smart Contracts (not today’s bitcoin transactions) would need to execute somewhere. If everyone runs ther CP server on a Rapberry Pi, that can’t work because Pi can barely run Bitcoin and CP as is.

Why would I execute your Smart Contract code (or why would I execute it quicker than some other)?

Ethereum is different (like Bitcoin is different from CP), their nodes are paid to run smart contracts, aren’t they?

Actually, I think not. ETH miners are rewarded tx fees plus contract gas fees too, I think. But every node must still run / validate every contract AFAIK. The only difference from CP is that gas goes to miners instead of being burned.

Let’s ask a dev to weigh in.

That sounds like a “yes”.
“Contract gas fees” seems to me the Ethereum equivalent of what CP servers would get paid.

It was not a “yes”. The gas goes to the miner who includes the contract/tx in a block. Still, every node runs the contract code without compensation. The equivalent with CP would be that the Bitcoin miner receives the XCP gas fee.

The important thing is whether running smart contracts require much computing power or not. My gut feeling is that it does not — running a Bitcoin node and validating txs (also without compensation) seems a lot more cpu intensive — but someone with deeper knowledge will have to weigh in.

We know that the bitcoin miner doesn’t get compensated for including Counterparty transactions per se, they get compensated for confirming bitcoin transaction (not caring what it is about).

Clearly CP contracts won’t be stored in the blockchain. If that’s the case, my question is who would store them, where and why would they do it for free?

Fortunately I came across this page with the original plan (which may change, of course):

The basic fee structure of Counterparty Contracts will be very similar to that of Ethereum. Different computational or storage operations will be associated with different fees, to prevent abuse of the system. Contract execution fees will be paid only in XCP, the native currency of Counterparty, (it would not be possible for them to be paid in Bitcoin).


All Counterparty nodes will execute all contracts, and it will be the holders of XCP that receive the fees for the execution.


Thank you for your comment! :grinning:

Well, actually there are more coins that use proof of burn, for example Slimcoin https://bitcointalk.org/index.php?topic=613213.4280.

Yes, I do understand that there’s no mining and that XCP only used proof of burn for the initial distribution (as well as Mastercoin, by the way). But there are other coins that actually use PoB to generate new blocks.