What Does Burning Crypto Mean? How & Why Is It Burned?

In the event that the person does not hold the required number of coins, the function will not be executed. Enter the address of the wallet holding the NFT in the first field. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.

The burn aimed to remove value from Terra’s community pool, but in reality, it simply moved the value from the pool to the individual holders of the cryptocurrency. Control of the money supply has traditionally rested exclusively with central entities. But increasingly, the decentralized nature of blockchain means projects themselves, artists and even regular people like you and me can use supply as a vector to impact the value of what we hold. Among many revolutionary features, perhaps the most appealing aspect of crypto currency is the control it restores to users.

what does burning crypto mean

This process is written into the project’s code and implemented at various increments as outlined in the whitepaper. While Bitcoin doesn’t make use of coin burning, many projects on the Ethereum network, particularly ERC-20 tokens, have been known to implement it. Crypto burning can be extremely beneficial for holders, prospective investors, and projects alike, both reducing inflation and incentivizing traders to hold.

You can compare burning an NFT to stashing bricks of gold in a vault that no one knows the code to. NFTs differ from fungible assets like cryptocurrencies because they can’t be traded or exchanged at an equivalent value. There are many blockchain products that implement the BME Model. Some of the more popular ones include Factom, Sriptarnica, and CHR. These products all use a blockchain to store data and transactions.

Burning Crypto Coins Can Be Beneficial

By reducing the supply of tokens, burning tokens can create an imbalance in relation to demand that usually moves the price of the token upwards because of the asset’s increased scarcity. The Terra project, for example, burned 88.7 million of its LUNA tokens in November 2021. The tokens represented around $4.5 billion in value at the time, which the company said made the event one of the largest layer 1 token burns ever.

what does burning crypto mean

Also, EIP-1559 adjusts the block size per transaction volume, which automatically adjusts the base fee. When network activity increases, so does the base fee and vice versa. This address should be available on the platform you minted the NFT. The address will open on Etherscan, a block explorer for Ethereum-based tokens.

The burn and mint process also helps to secure the network by making it more expensive to mount a 51% attack. You are probably wondering where the tokens destroyed come from, is it to decrease the coins I have in my wallet? No, the destroyed tokens come from a completely different source.

Removing an asset from circulation to change its availability and value is not exclusive to cryptocurrency. For example, many central banks often adjust the amount of the currency in circulation to change its purchasing power. However, there are many other reasons for burning cryptocurrency coins. The essential idea behind coin burning has been used by financial institutions way before the modern days of cryptocurrency. Publicly traded companies would buy back stocks to reduce the number of shares in circulation at a given time. By doing this, the company increased the value of the shares while simultaneously increasing the company’s financial performance.

Applications for coin burning

That’s a great question – and the answer can be found with a quick recap of the dynamics of supply and demand. The value of all Shiba Inu tokens in circulation is around $6.3 billion, according to CoinMarketCap. Are you searching for an “off-the-shelf” approach to your banking needs? At Unbanked, learn more about our suite of crypto-enabled financial products.

Burning is performed by sending the coin or token to a burn wallet or address, from where the coin or token can’t be retrieved. Proof of burn mechanisms are sometimes put in place to entirely subsidize transaction fees. Whenever a Ripple transaction is made, a portion of that transaction is burned.

what does burning crypto mean

And a third reason is that it’s a way for participants to add new blocks of transactions to a blockchain with proof-of-burn cryptos. This is because coin burning reduces the supply, making the tokens of that particular cryptocurrency what does burning crypto mean more scarce. As is traditional with supply and demand models, scarcity often leads to an increase in price and can benefit projects and investors. Every cryptocurrency user is assigned a wallet address to send and receive coins.

Once the price increases, the developers could sell off their coins and walk away with a hefty profit, leaving remaining stake holders with worthless tokens. Sometimes, burning is done to stop any unfair advantages to those early adopters. The PoW system does have a mechanism that promotes the periodic burning of these coins.

The Basics of Crypto Coin Burning

Assuming the underlying crypto project is successful, token burning may artificially increase a token’s price. By reducing a token’s circulating supply, they create scarcity and the value of the token may rise as a result. So, tokens are gone forever once project developers send them to a burn address. However, the burn transaction is publicly visible on the blockchain to prove that the tokens have been burnt. A blockchain is a record of a cryptocurrency’s transactions, and its consensus algorithm is the way that it confirms transactions.

  • This process is written into the project’s code and implemented at various increments as outlined in the whitepaper.
  • A blockchain is a record of a cryptocurrency’s transactions, and its consensus algorithm is the way that it confirms transactions.
  • The Terra project, for example, burned 88.7 million of its LUNA tokens in November 2021.
  • NFTs were created as immutable assets that operate using code on a blockchain.
  • Reasons for burning an NFT include reducing the supply to increase a collection’s value, rectifying errors, and gamifying trading.

The exchange continues to do these burns until 50% of the total Binance Coin supply is removed from circulation. By eliminating an amount of crypto, the value of the remaining coins should theoretically increase. Unsold tokens may be burned after an initial https://xcritical.com/ coin offering , while coins may be periodically burned for various purposes. For example, Binance burns BNB tokens because it committed to a total of 100 million burned. Tether burns an equivalent number of tokens when the coins are withdrawn.

How Can Coin Burning Increase the Coins Value?

As long as demand remains steady, this should lead to an increase in the per token value. The burn transactions are publicly visible on BscScan, a block explorer for the Binance blockchain. This is a technical process, but it essentially entails telling the smart contract the number of coins they want to burn. The smart contract will then verify that they have enough coins in their wallets and subsequently executes the burn.

what does burning crypto mean

With that, it can help balance new users and early mining adopters. Each time a new block is mined, the speed of the coins created will decrease. As a result, miners must burn their early coins and mine those new ones. Plus, this process makes it harder for the early miners to hold on to the majority of their coins.

Clearly defined burning mechanisms can help people better analyze the supply versus demand of a given crypto asset. Also, many projects like stablecoins rely on burning to maintain their value. Through the use of a smart contract, also known as a burn function, the network would remove a specified number of tokens from circulation, decreasing the total supply and thereby increasing the demand. Coin burns have been known to lead to an increase in price, as the supply-demand ratio is altered.

Who can burn tokens and why?

Investopedia does not include all offers available in the marketplace. Sign up for Valid Points, our weekly newsletter breaking down Ethereum’s evolution and its impact on crypto markets. 3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business. • Related to the above, proof-of-burn can help protect the network from being hacked. Get access to experienced career coaches—complimentary for all SoFi members.


Regardless of the reason, project creators turn to the burning mechanism to rectify these issues. You can verify this is a true burn address by looking at the large number of incoming transactions in comparison to the zero outgoing. However, you will need to pay a gas fee to send your NFT to the burn address.

In a similar way, algorithmic stablecoins automatically mint new tokens and burn them frequently to maintain their dollar-pegged value. For other cryptocurrencies, engaging in coin burning can sometimes be an effort to manage supply in a way that increases scarcity and tries to mimic Bitcoin’s supply and demand dynamics. While a coin burn can bump up the value of a certain cryptocurrency, there are no guarantees that this proces will increase the price, or that the price won’t then decline.

It operates on the principle of allowing miners to burn virtual currency tokens. They are then granted the right to write blocks in proportion to the coins burnt. There are a few other practical reasons for burning cryptocurrency. Cryptocurrency is “burned” when a coin is sent to a wallet address that can only receive coins. Some projects have regular burning events built into their code. The aim here is to reassure potential investors that the future supply of the token will continue to shrink, calming concerns of inflation or an overly diluted market.

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