What is Coin Burning?

Last Updated on December 28, 2021

Coin burning is the process of locking them in an inaccessible wallet so that they are taken out of circulation (black hole wallets) on the blockchain. This has numerous effects on a cryptocurrency, including artificially controlling a coin’s inflation or deflation and, for miners, allowing them to gain more affordable access to the network to mine crypto.

If there are fewer coins in circulating supply and the same amount of demand, the price should go up. This isn’t a guarantee and may not be noticeable to the average crypto enthusiast. The effects of coin burns may even go unnoticed by the majority of users.

If the burn involved a considerable amount of coins, it could affect the market price of the coin. But, burning coins is meant to effect the stability of a coin’s price or the coin itself.

For example, the Ethereum hard fork upgrade is a good example of a useful coin burn. That particular hard fork burned one-third of its coins as a transaction fee, in order to carry out the first steps towards the shift from proof-of-work (POW) to proof-of-stake (POS) protocol.

Proof of Burn and Binance

An interesting case is Binance. The cryptocurrency exchange, which burns a certain amount of BNB on a quarterly basis. The company pledges that it will burn 20% of its profits in BNB each quarter, giving these tokens back to users of the platform, under specific circumstances.

To Recover Lost Coins

Burning crypto can be used as a last desperate attempt to “reset” a blockchain when a malicious transaction attack or severe hack, has happened.