This will surely give rise to some interesting, useful and thought-provoking blockchain developments for those who understand its utility. Let’s look at some key use cases for token burning, to get a better understanding of this dynamic in action. The higher the demand for a given asset, generally the higher its value. Here, we explain the practice of token burning, its various use cases within the crypto ecosystem, and  dynamics to be aware of.

Coin Burn is a unique concept in the Crypto industry, and a wide range of coins and tokens have adopted it. So, yes, in theory, a coin’s price would be increased by coin burn. However, this is not always noticeable unless burning crypto meaning you have prior knowledge of the coin burn. Coin burning gets rid of some assets in circulation — so no access or trading. However, you may be wondering why anyone would “burn” an asset that could be of value?

What is the purpose of burning crypto?

Like most things in the crypto world, coin gambling can certainly be a gamble. While it can certainly curb inflation rates and further stabilize the market, using it as a quick price hike tactic can turn out to be damaging to a coin’s ecosystem if done at the wrong time. But coin burning itself is certainly an innovative idea, and we’ll certainly be seeing more of it in the future. While Binance continuously burns coins in bulk, it took a while for things to start paying off in terms of value. It wasn’t until four years after the first mass coin burning that BNB began to rise considerably in value. So while BNB is now a pretty valuable coin, it certainly took some time for it to hit its exponential growth phase, despite the routine burns.

With a passion for emerging tech, Katie is also excited to see what new devices and digital platforms the coming years will bring. 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. If you own the tokens that are being burned, then yes, you would lose the value of those tokens. However, suppose the burn is successful and leads to an increase in the overall value of the cryptocurrency.

What is Token Burning?

A well-executed token burn can whip up a frenzy of excitement, catching the eye of investors and amplifying trading volume. Since you need a private key to access the coins at a given address, this means no one will have access to coins in this wallet. Developers also burn tokens as a way to hide whales who hold large portions of a cryptocurrency. Let’s say a developer launches a cryptocurrency with 1 billion tokens, keeps 100 million, and immediately burns 600 million. It will look like the developer owns 10% of the supply because the original supply was 1 billion.

But with collection issues still a potential problem for the business, many investors remain hesitant to buy shares. Master The Crypto is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that investment markets have inherent risks, and past performance does not assure future results. MTC has advertising relationships with some of the offers listed on this website. MTC does attempt to take a reasonable and good faith approach to maintaining objectivity towards providing referrals that are in the best interest of readers. On top of this, burning a certain number of coins to initiate a transaction for an update is also common.

Coin Burning in Lieu of Dividends

From the community angle, you could argue that token burns are a form of airdrop due to the value of community holders’ tokens increasing. Afterwards, the supply reduces and the value of the token appreciates by 10%. Accordingly, this has made every community holder’s token more valuable than it was before the burn. Hence, Mr Y who holds 1,000 units of Project X tokens would have had the value of his holdings appreciated by 10%, even though he still holds his original 1,000 units. Coin burning is an effective tool to signal a firm commitment by a cryptocurrency project.

In order to use the serum to create Mutant Apes separate from the original Bored Apes, Mutant Serums had to be sent to the abyss and taken out of circulation forever. Look out for red flags like anonymous founders, unclear project objectives, no real token use case, and a non-existent project roadmap. Also, never reveal your wallet’s private keys if you are asked to as part of a project’s token burn. If someone is asking for your private keys or recovery phrase, they are trying to scam you. The token burn event contributed to the increased scarcity of SHIB and its potential for a significant price increase in the future.

Understanding Cryptocurrency Burning

Unfortunately, it doesn’t always work as intended and sometimes has the opposite effect. Shares are also repurchased as a method of control—companies can use this tactic to prevent a hostile takeover—the act of buying shares to gain a majority and thus ownership of the company. This category includes coins that use Proof of Burn (POB) as their consensus technique.

• Another potential reason for coin prices to rise after a burn is publicity.
• And Stellar (XLM) held a one-time burn of 50% of its supply in November of 2019.
• At its core, the process involves intentional and permanent removal of tokens from the available circulating supply.
• This process does not consume many resources—other than the energy used to mine the coins before burning them—and ensures that the network remains active and agile.
• The tokens are sent to a wallet address that cannot be used for transactions other than receiving the coins.

The idea behind coin burning dates back to well before cryptocurrency. If you keep up with cryptocurrency at all, it won’t take long to hear about coin burning, a method of cutting a coin’s supply that became popular around 2017. As you often see in cryptocurrency, it has been copied almost endlessly since then. 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.

What are crypto burns?

Burning crypto refers to a deflationary process that permanently removes cryptocurrency tokens from circulation. This is done to decrease the total supply of a digital asset as an attempt to boost demand and increase market value. By reducing the supply and creating scarcity, the demand for the remaining tokens can rise, leading to an increase in value.