Home
News
There is one trend that has gained popularity is Coin burning. It is like a permanent elimination of existing cryptocurrency coins from circulation. The process will make them unusable. This burning process is an intentional action performed by the miners.
The digital currency has witnessed a massive adoption, especially in one and a half years. Yet, few are still skeptic about digital currency, the relevance of digital currencies and blockchain technology is gaining traction among investors.
Even though virtual currencies have only been a while for a short time now, specific trends have come and gone. There is one trend that is one of the most popular aspects of the digital currency industry currently, i.e. coin burning.
But what is it? The answer lies in the system only. It is like a permanent elimination of existing cryptocurrency coins from circulation. The process will make them unusable. This burning process is an intentional action performed by the miners.
They burn the coin or remove from circulation and the specific number from the total tokens in continuation. The coins where they are sent are either known as the eater address or a black hole.
Big blockchains like Bitcoin and Ethereum do not follow this process but smaller altcoins and tokens are often burnt to command their supply. This gives a very good incentive to the investors.
Hence, the process demarcates the cryptocurrency from the fiat currency and makes it distinctive. Fiat currencies are not burnt, but the flow of the available cash is regulated.
Benefits to investors
The term burning coin might sound negative, but it has its characteristics and positives involved. Usually, investors burn coins with the hope to increase their value. For example- 55billion XML’s were burnt to surge their value. However, the burn reduced the supply of the XLM by over 50%. The price impact was noticeable instantly in the short term. It jumped from 0.069 to 0.088 dollars in a day.
To keep the coin’s value study in the short run it is fine to burn the coin continuously. It also appreciates the value of the coin in the long term. Token burning is much like the share buyback by the companies. The coins can be purchased again at a reasonable rate and then immediately burned to increase the value of each holder’s existing token amount.
Coin burning is also useful to safeguard against spam transactions and Distributed Denial of Service attacks (DDOS).
Proof-of-burn
A unique mechanism Proof-of-burn (PoB) has merged from the use of the burning tokens. The users destroy tokens to gain mining rights. Since Bitcoin is its big advocate, Proof-of-work continues to be a popular choice. However, it consumes too many resources and is economically not viable. PoB tries to address this issue by limiting the number of miners that can verify and attach other blocks to the blockchain to match the number of tokens they have burned.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
