What is Coin Burning?
Coin burning is a strategic approach, not magic. Imagine reducing the amount of money in the world so that each remaining dollar becomes more valuable. In the cryptocurrency world, this is not only possible but also a popular practice.
Similar to how companies buy back their shares to increase their value, and central banks withdraw excess currency, coin burning strengthens the economy of crypto projects.
How Does It Work?
š Coins are sent to an address from which they cannot be retrieved. It's like sending a ship on a one-way journey. Thanks to blockchain technology, each transaction is permanently recorded.
How Do Projects Burn Their Coins?
Projects incorporate burning into their economy in various ways, from one-time events to continuous mechanisms. This helps control inflation, boost trust, and encourage investment.
There are two main methods of burning:
š¦ Sending coins to a special, inaccessible address
š Using special software that independently blocks tokens
Proof-of-Burn (PoB) Technology
šPoB is a consensus mechanism in the blockchain, similar to Proof-of-Stake (PoS), where coins support network security. However, in PoB, participants destroy coins, rendering them unusable, to participate in the network's operations.
The Purpose of Coin Burning
Burning coins reduces their supply, potentially increasing the value of the remaining ones. It helps combat inflation, strengthens investor confidence, and adheres to network rules.
š§ However, coin burning does not guarantee an immediate increase in value and can be seen as market manipulation, raising concerns among regulators.
š Examples of PoB blockchains include Ripple and Binance Smart Chain, which burn tokens to support network operations and stimulate native token growth.
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