What Does Burning Crypto Mean: Why Companies Burn Crypto?

Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. If you own an NFT you have the option to essentially burn it in exchange it for an ASH token. In doing so, you’ll not only get a stake in ASH, you’ll also decrease the supply of that NFT collection This pushes the value of the collection up as a whole (at least in theory). So the project poses some pretty deep questions about the value of art, the value of money and your personal values. Algorithmic stablecoins seek to overcome this by creating coins of stable value via control of the supply.

When crypto burning is embedded as part of an algorithm’s verification system, transactions are automatically verified. These protocols save resources while maintaining a fluid, active network. On the other hand, burning of BNB tokens didn’t fetch any appreciable dividends for that currency. However, Coin burn does have a place in propping up the currency and for demonstrating the promoters’ commitment to the currency,” he said.

What Is Burning In The Context Of Cryptocurrency?

It follows the principle of “burning” the coins (sending them to an eater address) held by the miners that grant them mining rights. This process only consumes the resources and energy used to mine the coins before burning them and ensures that the network remains active and agile. By reducing the number of tokens in supply, the entities initiating the burning hope to make the coins more valuable and less attainable, thus, increasing the worth of their holdings. As such, cryptocurrency developers will intentionally burn their cryptocurrency to accomplish these results. This isn’t a guarantee and may not be noticeable to the average crypto enthusiast. Sometimes, the effects of coin burns go unnoticed by the majority of users.

• By reducing the supply of tokens, burning can potentially increase their demand and market value.
• Coin burning is just the process of locking them in an inaccessible wallet so that they are taken out of circulation on the blockchain.
• Also, projects can use coin burning to implement scams known as rug pulls.
• Coin burning happens most often when someone wants to control the price inflation of a cryptocurrency.
• This process called “rebasing” and is the foundation for a raft of stablecoin innovation in DeFi 2.0.
• In order to understand this, we need to understand the basic economic laws of demand and supply.
• Binance completed its 21st BNB burn in October 2022, which includes the auto-burn feature, pioneer burn program, and a portion of gas fees burned in every transaction.

In this, rather than return it to its original owners, it goes to those who lost it in unintentional transactions. Companies burn cryptocurrency for various reasons, from managing token supply to signaling commitment and more. It’s a strategic decision that can influence the project’s trajectory and its token’s value. Tokens are burned by sending them to an inaccessible or “burn” address.

Different Reasons for Burning Crypto

For example, if a wallet containing stolen tokens is identified, the tokens can be burned to prevent the thief from using them. As previously mentioned, Ethereum recently did a huge upgrade to its crypto (or at least the start of one) and, to achieve this, carried out a massive transaction. The network covered the cost of this transaction or upgrade by burning some of its excess cryptocurrency. The upgrade takes place as a transaction and needs to burn some coins to execute. This artificial scarcity can, in turn, drive up demand and possibly the coin’s value.

Katie has covered a variety of topics during her time at MUO, including crypto explainers, cybersecurity guides, VPN reviews, recent hacks, and software tutorials. With a passion for emerging tech, Katie is also excited to see what new devices and digital platforms the coming years will bring. On the other hand, some coins just don’t need to be burned due to their supply limit.

Who can burn tokens and why?

Furthermore, the act of burning is deeply rooted in the principles of blockchain technology. Every transaction, including token burns, is recorded on the blockchain. Anyone can verify the integrity of the burn by examining the blockchain ledger, ensuring that the stated number of tokens have indeed been removed from circulation. The illustration below is an example of an address for burning coins on Ethereum. A wide range of coins and tokens have adopted the unique concept of Coin burn.

Burning, in the context of cryptocurrency, refers to the intentional and permanent removal of tokens from the total supply. Let’s take a closer look at the key reasons why burning is implemented in the crypto world. Burning in crypto refers to the deliberate and permanent removal of tokens from circulation. It is a process undertaken to decrease the total supply of a cryptocurrency, which can lead to scarcity and potentially increase the value of the remaining tokens. In general, crypto burning is a significant event for a cryptocurrency and can significantly impact the value of the tokens. As such, investors need to know when and how crypto burns are being conducted and how they may impact the value of the tokens they hold.

What Does It Mean to Burn Crypto? Practical Applications

Coin burning can generally be classified into two distinct categories, integrated at the protocol level or implemented as an economic policy. In order to understand this, we need to understand the basic economic laws of demand and supply. Protocols that use proof of burn include Ripple, BitShares, Slimcoin, Counterparty and Factom.

Additionally, crypto giant Binance has been burning millions of its native token, Binance Coin. In October 2021 alone, the company burned over 600 million dollars worth of BNB. On a surface level, one may think that this is a pretty crazy thing to do, given the incredible value of the crypto that was burned. One useful indicator of how burning can affect price comes from Bitcoin Cash.

What Does Burning Mean in Crypto: Expert Explanation

And in some cases, you also get the special right of mining blocks in weight of the coins that you have burnt. The idea is that miners/participants should show proof that they burnt some coins i.e., sent them to a verifiably unspendable address. This is expensive from an individual point of view, just like proof-of-work, but it consumes no resources other than the burnt underlying asset. I am going to explain both one by one with the help of an example that you can very well relate to. But before that, I need to explain the proof-of-burn mechanism using which the coins are burnt.