Economics of Proof of Burn


We were discussing here what happens with the underlying burn chain if they have limited amounts of coins. If all the bitcoins have been burnt what happens to the blockstack chain? What are the incentives for the burn chain to accept blockstack transactions?


This probably won’t happen anytime soon. Proof-of-Burn makes it so that at each block, there is a well-defined exchange rate between Bitcoin and Stacks (i.e how many BTC were destroyed to produce the Stacks coinbase). As more and more BTC are destroyed over time, they become more and more valuable, and thus the fewer of them would be destroyed in future sortitions. Also, if Stacks got more and more valuable versus BTC, more and more BTC would be destroyed in the race to produce a Stacks block at a profit, causing BTC to become more valuable, leading to less of it being destroyed in future sortitions. The scarcity of Bitcoin and its irreversible destruction in PoB creates a negative feedback loop that prevents the maniacal rapid destruction of all liquid Bitcoin.

More likely, what would happen in the medium term is that miners would become aware of PoB and censor everyone else’s on-chain PoB transactions, thereby maximizing their Stacks coinbase rewards while making it so that only Bitcoin miners could be Stacks miners. While this would be a degenerate case, it still doesn’t affect Blockstack users too much since the Stacks chain would still be backed by 100% of the Bitcoin mining power – it’s equivalent to having a merge-mined chain with 100% miner participation.