What’s Burning Of Crypto All About?

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The term crypto burn or burning of crypto is one I’ve recently become acquainted with. I’ve heard of the term so much so that I think it literally means to take a token or crypto and burn it.

Basically, crypto burning means the same. Literally, it means to destroy a cryptocurrency or a token. This is done by transferring the cryptocurrency or token to a blockchain address known as a burn address. This act is a burn because it removes these transactions from the circulation supply of the coin or token.

One might get confused because after all an address should have a key meaning anyone in the future can access these coins and use them which will then defeat the purpose of crypto burns. But that’s not the case. The wallet addresses these coins are transferred to have no keys. An address without a key means it’s worthless so no one can access these tokens.

I wondered myself when I first heard of crypto burns because why would someone spend a lot to mine tokens, provide liquidity for them only to end up burning or sending them to an address and permanently losing access to them. Reading about the importance instantly changed my mind.

Increasing the price of the asset in question and managing its price are reasons for crypto burning. It is believed that burning a crypto can help to increase its price. We all know of supply and demand and how btc despite its limited number of coins have got so much value. It’s believed that when these tokens have reduced circulation, investors will be more willing to investment their funds. This will tend to increase the value of the asset.

Also, when the number of tokens are reduced, the price can be managed. This is all betting on the hopes that the level of interest in the crypto in project at least remains the same or increases after a burn. That’s the way it can maintain its price or increase in value.

Proof of commitment is also a reason for crypto burns. We have several consensus mechanisms including but not limited to proof of work, proof of stake, proof of elapsed time, proof of burn, among others. The proof of burn works such that miners are only allowed to mine blocks after they have proven their commitment to the blockchain or the asset by burning the crypto.

Although burning has proved to be very significant, it can have negative effects. The permanent elimination or removal can cause loss of potential use cases of the crypto. The thought for now is that burning increases the value but what happens if in 5-10 years time there’s so much demand for the token and due to its limited supply not all investors can have access it. Every project has use cases and limiting the supply of a coin means limiting its reach which also means the coin is not fully utilized.

When talking about crypto burning, it has to do with burning large chunks of the token. Maybe I should have made this point clearer in the beginning. Burning large amounts of the token is the only way to help the project achieve its hopes and it’s not easy to burn a huge amount of crypto. At the end of the day, if the burn is not enough it becomes a waste of tokens.

There are a lot of tokens that are burnt everyday as a means of price increase and stability. A few are Shiba Inu, doge sand our very own on hive engine; Neoxag.

To read more about crypto burns and burning with Shiba, you can visit this link or this one.

Thank you .