Burn/Burned Definition
In the context of cryptocurrencies and blockchain technology, to burn or to have burned, refers to the process of permanently removing coins or tokens from circulation. This is achieved by transferring them to a public address from which they cannot be spent owing to the absence of a known private key.
Burn/Burned Key Points
- Burn/Burned pertains to the permanent removal of coins or tokens from circulation.
- It’s achieved by sending the tokens to an unspendable address.
- The process reduces total supply and can have an inflationary effect on a cryptocurrency’s value.
What is Burn/Burned?
When specific tokens or coins are referred to as ‘burned,’ it means they have been rendered inaccessible and are hence out of circulation. This is usually a deliberate move, orchestrated by the coin’s creators or community, intending to reduce the total supply of tokens or coins, possibly inducing scarcity, and theoretically driving up the value of the remaining coins.
Why is Burn/Burned Important?
Burning is an important mechanism because it can have a significant impact on the value and the stability of a cryptocurrency. It represents a deflationary measure which, by reducing the supply of coins or tokens, may result in upward pressure on the price, assuming demand remains constant.
When is Burn/Burned Used?
Burning is used at different times depending on the specific cryptocurrency and its underlying economic model. Some projects burn tokens whenever a transaction happens, while others may schedule periodic burns. Certain cryptocurrencies like Binance Coin (BNB) execute quarterly burns as part of their monetary policy.
Who Can Burn Tokens or Coins?
Usually, the entity or individuals who can burn coins or tokens are those in control of the project. However, many decentralized projects have implemented mechanisms allowing for community voting to decide on burns. It’s important to note that often, in proof-of-work mining, miners can also ‘burn’ transaction fees by not claiming them which effectively removes them from circulation.
How is Burn/Burned Done?
Burning is typically done by sending coins or tokens to a so-called ‘eater address.’ This is an address from which tokens or coins can never be spent because its private key is not known by anyone. The transaction transferring the tokens or coins to such an address is then verified and recorded on the blockchain, making it irreversible and the tokens permanently unspendable.
