Coin burn is used to remove the specific amount of coins from the available supply of the coin. Coin burn is an important term in the lucrative market of cryptocurrency which everyone should know about before investing.
Have you ever wonder how a digital asset can be burned if it isn’t physically available? Burning a coin in cryptocurrency means sending a specific amount of coins to an address that is unused and these coins can’t be accessed or transferred again. Coin burn is an effective method to remove the coins from the available supply of the coin and in return, it increases the scarcity of the currency. The concept of coin burn started back in the 2nd half of 2017.
Coin burn: Background
The idea of burning is not new, it is the same as the idea of a corporation’s buying back stack. Corporations use their cash on hand to buy back the stocks in circulation which help to increase earnings per share and net income of the company. So the developers took this idea from the stocks and implemented it in the cryptocurrency.
Purpose and process of Coin burn
Most importantly Coin burn is used to slow down the inflation rate or to reduce a specific amount of coins from the circulating supply of the coin. For example, If I have 100 coins of Ether worth $100 and I burn 50 coins, now 50 coins are of 100$ worth. In this way, the miner and developers of the coin hope to reduce the available supply and make it more valuable.
Proof of Burn (PoB) is the mechanism that allows miners to burn the coin. PoB is often referred to as Proof of Work (PoW) without waste of energy. PoB is implemented by the blockchain network to ensure that all nodes agree about the valid true state of the blockchain’s network.
Coin burn can give a boost to the price of the coin. For example, the latest upgrade of Etherum has given a boost to the price of Ether (ETH). In most cases, prices were pumped but it is not always the case.