“Burning” in the context of cryptocurrency is the process of permanently removing coins or tokens from circulation, effectively reducing the total supply available.
This process is typically accomplished by sending a portion of the tokens to a designated “burn address”—a public address with no known private key. Without a private key, it’s impossible to access or use the tokens sent to the burn address. Hence, they’re effectively removed from circulation, considered “burned.”
Burning can serve a few different purposes in cryptocurrency systems:
- To manage inflation: By reducing the total supply of tokens, burning can increase the relative value of each remaining token, assuming demand stays constant or increases.
- To reward holders: Sometimes, projects will burn tokens to increase the value of the remaining tokens, indirectly rewarding those who hold the token.
- To destroy unsold tokens: After an Initial Coin Offering (ICO) or a token sale, any unsold tokens might be burned to avoid flooding the market.
- Tokenomics model: Some cryptocurrencies, like Binance Coin (BNB), have a model where a portion of tokens gets burned periodically.
- Proof of Burn: Some coins use a mechanism called “Proof of Burn,” where miners must show proof that they’ve burned some coins by sending them to a non-retrievable address to create a new block in the blockchain.
- To pay for transaction fees or other operations: On some platforms, tokens are burned as a means of paying for certain operations, like executing smart contracts.
Remember that the specific implications and purposes of burning can vary widely between different cryptocurrencies, as each can have its own unique rules and systems.
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