Crypto glossary
Proof of burn
Proof of burn is a mechanism where users destroy coins by sending them to an unspendable address to earn rights, such as minting a new asset or mining.
Burning coins means sending them to an address for which no one can have the private key, so they are removed from circulation permanently. Proof of burn uses that verifiable sacrifice as a signal of commitment: the more value someone destroys, the more of a new token, voting weight or block-production rights they receive.
It has been used mostly as a fair launch and bootstrapping tool. In 2014 Counterparty created its XCP token by having participants burn bitcoin, so the developers received no special allocation. Some proposals use it as an alternative consensus method that mimics mining without hardware, and certain bridges and two-way pegs use burns on one chain to release or mint assets on another.
As a consensus mechanism, proof of burn has seen little real adoption and raises questions about who benefits from the destroyed value and how to prevent early burners from dominating. Burning is also used loosely in marketing; a project announcing a burn of tokens it controls is not the same as users burning their own coins to prove commitment.
Example
In Counterparty's launch, a participant sent 1 BTC to an address with no known private key and received in return about 1,000 XCP, proving they had given up the bitcoin.