Proof of Burn (PoB) is a lesser known or used method that is often referred to as a consensus mechanism. Characterizing PoB as a consensus mechanism may not be fully accurate, however, since it has historically been used as a method for fair distribution of tokens on new blockchain networks. >[!Example] >Counterparty is a Layer 2 protocol built on the Bitcoin blockchain which uses Bitcoin miners to process transactions. Counterparty's native currency (XCP) was distributed to people who sent Bitcoin to a "burn" address on the Bitcoin network during an initial token distribution period. After the distribution period completed, XCP transactions continued to be settled by the Bitcoin miners. This is because Bitcoin and XCP are both stored on Bitcoin Layer 1 addresses. This means XCP transactions make use of Proof of Work consensus mechanism for final settlement, not a Proof of Burn consensus. For this reason, Proof of Burn is essentially a mechanism whereby the tokens themselves are being "provably" burned. That is, the address to which funds are being sent can be cryptographically verified as an *unspendable address*. In PoB, participants may want to demonstrate their commitment to the network by burning or destroying a certain amount of cryptocurrency tokens. This act of burning tokens is seen as a form of sacrifice, as participants are willingly giving up their assets. While this may not literally contribute towards consensus, the design can bolster an important property of final consensus: >[[Sybil Resistance]]: Sybil attacks involve creating multiple fake identities/addresses to gain control or influence over a network. By imposing a cost to participate in a network, PoB could act as a deterrent against Sybil attacks. The sacrifice required to burn tokens makes it more difficult and costly for attackers to create numerous fake identities, thereby increasing the resistance of the network against such attacks. Some blockchain protocols may burn tokens, or require block validators to burn tokens, in order to create an ecosystem. It therefore may be important to distinguish between PoB and [[Token Burn]]. ![[Token Burn]] PoB and token burn are therefore similar concepts with some overlap, but they may serve different purposes depending on who sends the funds, or with what protocol the "burning" is performed. That is, PoB can be a mechanism which enables new network participants to voluntarily burn tokens and receive new tokens on said network. On the other hand, token burn as proposed in the Ethereum protocol by [[Ethereum Proposals#EIP-1559|EIP-1559]], is a mechanism to manage supply and demand dynamics by permanently removing a portion of transaction fees from circulation. See [[Transaction Fee Mechanisms]] as a related note on this topic.