Welcome to week 8 of the Crypto Alert of the Week series, dedicated to documenting interesting or high profile frauds/hacks etc that recently happened and have been reported into the AMLT Network and show how the AMLT Network can help track and prevent it in the future. Proof of burns have been used to accomplish multiples of things for multiples of projects, but in short Proof of Burn is a consensus model to substitute Proof of Work and serves to burn coins or tokens for some purpose like burn unsold ICO tokens. Once funds are sent there you cannot withdraw them and they are technically taken out of the circulation or simply “burnt”. These addresses only have a public key and the private key is unknown so it is not possible to withdraw funds. This type of addresses may have many different names and usually contain some specific words like Burn DontSendHere, BitcoinEater etc.
Proof of Burn can be used to fortify long-term investor commitment to a project as it can stabilize and increase price overtime and major entities like Ripple and Binance use different forms of PoB for their coins. The previously mentioned burning of unsold ICO tokens might be the most popular kind of PoB as many ICOs have taken this route, such as Counterparty.
During their statement as to why they were doing the proof of burn, they had this to say.
“If burning bitcoins for XCP still sounds strange, consider that Bitcoin miners also destroy one resource to get another. Miners use electricity (which is ultimately burning fuel) and receive newly minted Bitcoins in return for processing transactions and keeping the Bitcoin network secure. Those who burnt bitcoin to get Counterparty XCP coins did the exact same thing, except the resource they destroyed was not more fuel, but bitcoins. The result achieved was establishing Counterparty’s legitimacy, as we have already discussed.”
Below we documented through our AML Risk Reports how a proof of burn address looks and works within our Platform and the AMLT Network. In this case, either the Counterparty team or a user of theirs would report the proof of burn address into the AMLT Network. After analysis, and if deemed to be correct, the data we would implement would be reflected in the AML Risk Report, potentially preventing any party from accidentally sending their funds there. In case you don’t see the AML/KYC risk report below click here.
In case you don’t see the AML/KYC risk report below click here.
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AMLT is the token for the AMLT Network and Coinfirm AML/KYC Platform. The first solution allowing the global economy to provide data to fight ransomware, hacking, malware and other online fraud and scams touching the cryptocurrency economy. In return for valid data provided, AMLT Network Members are rewarded in AMLT that can then be used in various ways. Created by Coinfirm, a global leader in regtech for blockchain and cryptocurrency, AMLT not only creates the first system where entities can report addresses and evidence tied to nefarious actors in the economy, but AMLT token can be used for discounted services on the Coinfirm AML/KYC Platform that is already servicing countless ICOs and over 100 companies in both the cryptocurrency and traditional spaces. Network Members also receive privileged access to Coinfirm products such as our tools and panels, the AMLT knowledge pool with exclusive content and materials as well as additional benefits and features, helping them limit exposure to risk and increase transparency for themselves, their clients and the entire digital economy.
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