What does it mean to burn crypto? Let’s find out. Crypto burning is simply a process where users remove cryptocurrency from the blockchain. This idea came from the traditional stock markets. Unlike the stock exchange, the concept of crypto burning is effortless. Smart contracts contain the information that enables investors to ‘burn’ or delete tokens smoothly. The buy-back-and-burn technique helps shift value to the investors. Unlike dividends, burning coins can help increase the asset value. It also has more benefits when it comes to tax regulations.
Through burning, investors get to influence the price stability of the token, which means more investors tend to finance projects that are involved in token burning. Increased liquidity and HODLing perks are just some of the most relevant features that shareholders value in the long run.
Burn crypto address
Burning cryptocurrencies, in simple words, stands for sending the tokens to an invalid wallet address. There is no way for anyone to access the data once the coins are shipped. The unusable token address will hold the tokens, but none will be able to retrieve them. You cannot do anything outside of the system.
Miners are the ones in charge of the process. They don’t do it manually but rather they code the instructions into the smart contract. The wallet address that stores the token is also called the ‘eater address‘. The coins sent to the wallet aren’t visible to the blockchain data. They will appear as forever lost. That is why it is not recommendable to burn your own tokens, as the coins remain irretrievable, and you end up throwing money in the air.
Why burn crypto coins?
Crypto projects burn their own tokens because scarcity drives up their token value. After erasing tokens from existence, there are two ways to proceed. First, the community buys back. Secondly, they can be taken and used from the current pools. One of the best examples of this is the Binance coin, BNB. The crypto coin burn schedule has resulted in a fantastic price surge.
However, not every cryptocurrency will rise in price. This is where the importance of DYOR comes into place. Both the traditional and crypto markets are facing the dangerous effects of inflation. One of the most effective ways to combat the side effects is through token burn. By decreasing the crypto supply, we are also influencing the inflation rate. That way, we can make the market stable.
Can you burn crypto?
Well, technically, yes, you can burn crypto. However, the real question is, why would you want to? Developers usually burn large quantities of coins to manipulate the supply. But, these are some risky procedures we are talking about. There have been many dubious cases where the developers have sent burned coins to their digital wallets. Why would anyone do that, you wonder? Because they want to either deceive the investors like you or cover up the whales.
Generally, you want to leave token burning to developers and miners. Both reap the fruits from the system. Founders ensure a less volatile price movement, and miners burn coins to gain mining power. Instead of removing small quantities of crypto from circulation, individual investors should focus on staking crypto or trading.
Crypto buyback
The great thing about crypto is that most of the features are more advanced, than, let’s say, the stock market. So, instead of manually buying back the stocks, buybacks are regulated by an encrypted message in the smart contract. Why is this good? Because this is your guarantee that the removed tokens will never resurface. Additionally, the decreasing supply might then lead to exponential price growth.
Developers burn tokens for many reasons. But they also buy back to improve the business model. Sometimes it is only about economic implications and creating hype. They could also use a unique chance to offer a kind gesture to their holders. Buybacks have proven to be an efficient method for steady growth. What better way to encourage the investors to HODL than to work on maintaining the price? Apple, Binance, and Nexo are leading the movement with their initiative in the field.
Key takeaways
Well-informed decisions are a crucial part of the solution. Whilst crypto burning is one of the trending topics in the community, it is not for everyone. Big players still manipulate the market using a myriad of methods. But, investors can also participate in this global movement for financial freedom. Staking, yield farming, or HODLling have already made millionaires. Trading is all about finding your own unique approach to this fast-paced market.
To learn more about everything crypto, see our Learn section.
