What is Coin Burn? What Does It Do?

The supply of cryptocurrencies can be limited or unlimited. It is clear how much cryptocurrencies with limited supply can be produced in total. With this; There are different methods for changing the circulating supply of a limited supply cryptocurrency. One of the most well-known methods is the burning of cryptocurrencies. In this text, you can find the answer to the question of what is burning coins.

What is Coin Burn?

Cryptocurrency burning refers to the process of transferring a cryptocurrency or token to a wallet where the private key is inaccessible. The cryptocurrencies sent to the inaccessible wallet for the crypto money burning process cannot be accessed again after the transfer process is completed. Cryptocurrencies transferred for incineration are deleted from circulation after the transfer process. Thus, cryptocurrencies that are permanently deleted from circulation lead to a decrease in the total supply. Burning is a technique used in cryptocurrencies. In traditional markets, different techniques are used to fix the ratio of the fiat currency to global currencies or to realize its upward or downward movement.

How to Burn Coins?

Project developers and users with existing cryptocurrencies can burn cryptocurrencies. Cryptocurrency burning process starts with the user who owns the cryptocurrency determines the amount they want to burn. Smart contracts verify that the amount users specify for the incineration is in the wallet. The specified amount of cryptocurrencies is removed from the wallet and burned. After the burning process, the total supply of the current cryptocurrency is updated by decreasing the amount burned. After these transactions, it is not possible to reach the burned cryptocurrencies.

What Does Burning Coins Do?

After the cryptocurrency is burned, the circulating supply of the cryptocurrency decreases to a certain extent. A decrease in circulating supply can create a high rate of demand. This may lead to an increase in the value of the cryptocurrency that was burned.

For project developers, cryptocurrency burning is used to control the circulating quantity of existing cryptocurrency.

Proof of Burn

Proof of Burn is one of the algorithms that allows all participating nodes to agree on the state of the blockchain network. Users participating in the Proof of Burn protocol burn the cryptocurrencies they own of that blockchain. Users who perform this operation gain the right to mine that cryptocurrency and receive the mining reward. With Proof of Burn, the problem of high energy consumption is addressed. Lower energy consumption is achieved with Proof of Burn. In this protocol, users burn their cryptocurrency to show their loyalty to the network.