PoB protocol analysis

The Iagon team has recently completed an important challenge by launching the burn proof (PoB) protocol suitable for the Cardano ecosystem. This article will provide a detailed introduction to this solution, mainly covering the following aspects:

1. Overview of the Proof of Burn Mechanism and Its Applications
2. The PoB solution of Iagon is implemented on smart contracts of the Cardano network.
3. The deployment and testing process of smart contracts
4. Execute the PoB protocol by sending tokens to the "black hole" address.

1. Proof of Burn and its Applications

Token burning is essentially sending tokens to an inaccessible "black hole" address. This address has no private key, making it impossible to retrieve the destroyed tokens. The public can verify that the destruction has indeed occurred, but only knows a commitment value. This mechanism can prevent intermediaries from censoring the burned funds.

The burning mechanism has multiple uses, as it can both increase the value of the remaining tokens and serve as a proof of commitment for the blockchain protocol. Large-scale burning can trigger deflationary pressure, as it reduces the total amount of tokens in circulation. Although burning is a common operation, it still requires acceptance from miners.

The security of proof of burn is based on cryptographic hash functions. These functions are easy to compute in the forward direction but extremely difficult to compute in the reverse direction. Essentially, a small change in the input will result in a huge random change in the output. This means that it takes an extremely long time to reverse-engineer the input from the output. In simple terms, flipping the least significant bit of a cryptographic hash function can create a black hole address, and funds sent to that address will be difficult or impossible to recover.

The security of encrypted transactions is entirely based on public key cryptography and hash functions: "Every time funds are sent, a new unspent transaction output (UTxO) is created." UTxO records the amount and the hash of the recipient's public key. The recipient must sign the new transaction with the same public key when using the funds.

Using the least significant bit of the flipped hash output instead of directly using a zero-value hash is to achieve a two-step process: first burn the funds, and then prove that they have been burned. This requires first creating a commitment value hash, and then showing the created black hole address.

2. PoB Smart Contracts on the Cardano Network

Cardano smart contracts allow transactions to be executed according to rules, aiming to establish transparent and verifiable transactions. Recently, decentralized finance and organizations have driven the widespread application of smart contracts.

Cardano adopts a structure different from Ethereum, allowing users to simulate transactions in their wallets to enhance security. Cardano's smart contracts consist of three parts:

• Redeemer script: controls the spending of eUTxO
• Wallet Script: Represents the user's redemption of funds and the creation of new eUTxO
• eUTxO: Holds funds and data points used to determine the conditions of fund usage.

This means that Cardano smart contracts do not have a centralized state, and each eUTxO has an independent state. Possible operations include:

• Burn: Send funds to the black hole address
• Verify Burn: Confirm that the burn has occurred
• Lock: Send funds to an address with a key
• Redemption: Retrieve the locked funds

The endpoint runs in the user's wallet, and the generated transactions are sent to the blockchain. The redeemer script verifies that the funds can only be accessed by the address that holds the hash value.

In the locking operation, the hash value may be one's own address. In burning, the hash value points to the black hole address. This is achieved by giving the hash a secret commitment value and flipping it. Due to the use of cryptographic hash functions, it is almost impossible to find a matching input.

Intermediaries cannot know whether the transaction is burning or locking. This prevents selective scrutiny of burning transactions. The burning value can be verified through verification endpoints and public commitment values.

3. Deployment Testing of Smart Contracts

To deploy a smart contract on the test network, you need to perform the following steps:

1. Install Haskell toolchain
2. Build Plutus script
3. Start the Cardano node and wallet container
4. Restore the wallet and obtain the wallet ID
5. Run Burn Tokens
6. Verify Burn

These steps can hide whether the transaction is a burn or a lock. However, after the script is released, someone may attempt to compile a script that denies specific redeemers. This requires a lot of work but may lead to some burns being scrutinized. To prevent this, Iagon proposed a more secure solution.

4. From Smart Contracts to Wallet Scripts

Utilizing the characteristic that most operations occur in the user's wallet, a solution can be created that only uses the wallet, eliminating the need for smart contracts. This method cannot selectively prevent burn transactions. To stop all burns, the reviewer must block all script transactions. When only using the wallet, the only review method is to block all Cardano transactions, which is the ultimate resistance.

To achieve this, it is necessary to replace the public key hash with the commitment value hash and flip the least significant bit. Additionally, the address error checking for Cardano needs to be handled. The simplest method is to use a script and the Cardano API library to generate the address.

You can use the provided code to generate burn addresses, submit transactions to the blockchain, and verify the burn.

Conclusion

This article introduces the implementation of the PoB protocol in smart contracts and wallet transactions. Due to the lack of necessary infrastructure for Alonzo smart contracts, it is recommended to use wallet scripts. In the future, after the implementation of the PAB library, the complex smart contract solutions combined with wallet scripts will be more feasible and better able to resist potential scrutiny. For more information, you can check the relevant information on GitHub.