Coin burning is the process of permanently removing coins from circulation, reducing the total supply, by sending them to a so-called "eater address".
The "eater address" is not owned by anyone, hence the coins are irretrievable and effectively 'burned'.
The process of burning coins varies depending on the cryptocurrency and its underlying technology. However, the general idea remains the same: to reduce the total supply and increase scarcity, thus potentially affecting the value and utility of the remaining tokens.
Typically, burning coins involves a smart contract or a specific protocol built into the blockchain of the cryptocurrency. The smart contract specifies the conditions under which coins can be burned, ensuring transparency and security. Once the conditions are met, the coins are sent to an address that is unobtainable, effectively removing them from circulation.
The burning of coins has a direct impact on supply and demand dynamics within the cryptocurrency market. Here's how burned coins can influence these dynamics:
While coin burning offers potential benefits, it also presents certain risks that should be carefully considered:
Coin burning has gained traction across various cryptocurrencies as a means to achieve different objectives. Some notable examples include:
These are just a few examples of cryptocurrencies that have adopted the practice of burning coins to achieve various goals. The motivations behind coin burning can vary from promoting scarcity and value appreciation to managing token supply and incentivizing long-term holding.