''Proof of Burn'' The Economic Politics of Destroying Coins

https://en.bitcoin.it/wiki/Proof_of_burn

This concept may need to be explored in the very near future for Reddcoin its probably time you had a look at it. FROM THE WIKI

Proof-of-stake (of the “Cunicula variety”, I mean) is in fact arguably already an example of such a task. It feels awfully expensive, to a miner, to save up a lot of bitcoins and become a big stakeholder; but from a whole-economy viewpoint, this is a swapping of assets’ ownership labels around, it’s not a burning of electricity or the like. However, I thought it would be interesting to invent a task that is absolutely, nakedly, unambiguously an example of the contrast between the two viewpoints. And yes, there is one: burning the currency!

By “burning” a tranche of bitcoins I just mean sending them to an address which is unspendable. The precise technical details of this will vary from cryptocurrency to cryptocurrency. With Bitcoin, any address which is [the RIPEMD160/SHA256 hash of] a script that evaluates to false will do. So, the script should do a “deliberately silly” thing - instead of things like “check such-and-such signature, and put the validity result on the stack”, it should do something like “add 2 and 2, and now check if what’s on top of the stack is equal to 5”. (Or just “push 4, and check if it’s equal to 5”. Anything of that sort.) There are thus an unbounded number of such scripts, with entropy saturating RIPEMD160 since you can choose big numbers to taste. So, bitcoins sent to such a txout can never be redeemed on a future txin. (Barring the cracking of RIPEMD160 and the finding of an alternative matching script, that is. If that happens, the cryptocurrency is in big trouble anyway!)

With this definition of burning, it’s not obvious to blockchain-watchers that some bitcoins have been burnt, at the time of burning. They’ve been sent to an address which doesn’t stand out from any other. It’s only later, when a miner who burned them earlier now wants to exhibit proof that “yes, these coins are burnt”, that blockchain-watchers get their proof. (Which basically consists of exhibiting the script that manifestly always evaluates to false, and hashes to the address.) If it’s thought desirable that the act of burning should be obvious right away, rather than later, then this can be achieved: burning merely needs to be defined as sending to some fixed unspendable address, with no variation - e.g. we could settle on the hash of “push 4, and check if it’s equal to 5”

What is this supposed to accomplish?

GrayPhoenix check out this topic on /r/bitcoin : https://www.reddit.com/r/Bitcoin/comments/3ekib1/what_is_the_point_of_destroying_coins/

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GrayPhoenix said:

What is this supposed to accomplish?

Coin-burning as a tool for transition between cryptocurrencies
Proof of burn may also be of interest as a tool for managing an orderly transition from one cryptocurrency (“oldcoin”, let’s call it) to another (“newcoin”). If the developers of newcoin are looking for a way of avoiding proof-of-work’s real resource consumption even in newcoin’s initial distribution phase, they can’t use proof of newcoin-burn: newcoins don’t exist yet. But they can use proof of oldcoin-burn! (Assuming their reason for creating newcoin is not a doubting of oldcoin’s security model, anyway. - Or at least, not a doubting severe enough to affect sufficiently deeply buried oldcoins, these being the candidates for burning.)

The newcoin blockchain would thus start with (at least a hash referring to) a complete catalogue of all the [sufficiently deeply buried] unspent txouts of oldcoin. Miners would then exhibit burning events within oldcoin up to a certain date; after which, the protocol would switch to burning of newcoin itself (and the dependency on oldcoin could even be thrown away entirely, if a checkpoint of that transition moment was promulgated and accepted by the newcoin community).

This has the nice consequence that, if people throughout the broader economy are gradually deserting oldcoin (as newcoin catches on), its value need not collapse! Instead, oldcoin gets burnt in the transition process, neatly reducing its nominal supply in just such a way as to roughly keep pace with its declining real demand. Meanwhile, those same acts of burning are minting fresh newcoins, at just the pace required to keep up with newcoin’s growing real demand. (At least, that’s the case if miners anticipate the transition speed correctly, and enter / exit the coins’ respective mining trades at a pace that competes away supra-normal profits. We also have to assume that the total real demand for both[/all…] cryptocurrencies is roughly stable in “economy-tracking” terms; or at least, that miners anticipate the time path of the size of total real demand, and of its currency-by-currency composition, correctly, or near enough correctly.)

To sum up: proof of burn could, just maybe, qualify as a new tool to greatly assist overall (multi-cryptocurrency) economic robustness and stability!

Redshift Redd Thanks, I think I understand a lot better now.

Ill offer no opinion on this topic. … But it’s damn refreshing to see fresh thoughts 'round here. Also, thanks for the clear explanation Redshift.