HEARD OF COIN BURN? HERE’S HOW IT AFFECTS YOUR LONGTERM HOLDINGS
Coin burn is a concept that has been widely adopted by a lot of cryptocurrency projects and is unique to the crypto markets alone. This process involves intentionally and permanently removing coins from circulation, thereby reducing the total supply of that particular cryptocurrency.
When coins are burnt, they are rendered unusable and can never be recovered.
Here’s how it works: a certain number of coins/tokens are sent to an eater address (this is an address used to store burnt coins where they are rendered unspendable) where the private keys are non-existent. While most wallet addresses are generated from a private key, an eater address (also known as black hole) is randomly generated which means they’ll have no private key and no one can access it. Coins sent in there are lost forever. Note that burnt tokens are publicly recorded and verifiable on the blockchain.
A lot of crypto projects adopt the coin burn mechanism, including Binance who just completed their 11th quarterly burn. Binance burns a certain number of tokens quarterly until 100,000,000 BNB (50% of total supply) is destroyed and taken out of supply.
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Obviously, this is a concept that will be beneficial to crypto projects and its users in the long run.
Among other reasons for coin burn, the most important is that it will increase the value of the coins for long-term holders. Scarcity is a concept that gives value to any asset, and considering that cryptocurrencies usually have a fixed supply, permanent removal of coins from circulation creates even more scarcity. Therefore, as demand continues to increase while supply is reduced, the value of the said coin/token will inevitably increase over time.
Some major ways crypto projects practice coin burn is by burning ICO tokens that didn’t get sold off or periodically buying back tokens from the open market using profits generated from trading fees and burning them.
Coin burn shows that a team is committed to their project by adding value to long-term coin holders and supporters of the project.
So, if you hold a coin/token that is periodically burnt by the project team, there’s massive potential of a rise in value over time coupled with the token use case.