Proof-of-Burn (PoB) is a blockchain consensus mechanism with minimal energy consumption, compared to proof-of-Work (PoW). It is an alternative consensus algorithm that tries to address the high energy consumption issue of a PoW system.
PoB is often called a PoW system without energy waste. It is a consensus mechanism used to validate new blocks on a blockchain. This mechanism is based on participants destroying coins. Only those who can prove that they have killed a predetermined amount of coins are deemed trustworthy enough to take over the validation of a new block. The destruction of these coins is called Coin Burn.
The coins are not permanently destroyed but instead transferred to an address. This address is publicly verifiable but inaccessible. The continuous withdrawal of coins from the system leads to an increase in the value of the cryptocurrency due to the already created scarcity. Unlike PoW powered platforms PoB uses virtual mining rigs to validate transactions.
Ian Stewart, the inventor of the PoB algorithm, uses an analogy to describe the algorithm: burnt coins are like mining rigs in the analogy, miners burn their coins to buy a virtual mining rig that gives them the power to mine blocks. The more coins burned by the miner, the bigger their mining "rig" will be.
PoB is economical in energy and hardware, unlike other mechanisms. Mechanisms like Proof-of-Work are known to require elaborate computations. For miners to be successful with PoW, they need powerful hardware, which consumes a lot of power. With PoB, the effort is based on the coins destroyed, while the energy consumption and hardware requirements are low.
With the requirements of miners to burn a portion of their coins to generate new blocks, the security of the system increases. This is because a relatively significant investment is required before a participant receives the appropriate authorization, similar to PoW. The investment made by the participants makes them interested in the system and act honestly. To ensure that the initial investment is not wasted, the participants must remain reliable.