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Coin Burn: A Brief Introduction

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By Author: Sanchit
Total Articles: 43
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Cryptocurrencies or digital currencies have marked its prominence in the past few years. Day by day it is increasing its popularity among the traders as well as new investors. In starting, only Bitcoin was famous among the investors but gradually many digital currencies have entered the market and are now trending among the traders. Another thing which is becoming trendy in the world of digital currency is Coin Burning.

Coin Burning- Meaning

Coin Burning, as the name suggests, actually refers to the process of purposely burning or eliminating a proportion of the digital coins from circulation by making it unusable. It is the process of permanently removing coins and hence reducing the total supply in circulation.

Coin Burning is done by sending a certain amount or portion of the digital coin to an address which is often referred to as a ‘black hole’. Coins are sent to these public black hole addresses because the private keys to that address are unobtainable by anyone and hence, the coins can never be spent by anyone. So, any coins sent to these addresses are unrecoverable and cannot be used, since they are logged and verified on the blockchain as destroyed.

Cryptocurrency miners and developers can remove tokens or coins from circulation, resulting in slowing down the inflation rates or reducing the total circulation of coins. The coins are completely taken out of circulation and recorded publicly and are verifiable as destroyed on the blockchain.

How to Burn Coin?

It is difficult to control the flow of coins in the market once they have been mined. In order to remove coins from circulation, miners and developers collect those tokens and then send them to black hole addresses. Without access to a private key, no one can access these tokens for transactions purpose. So, the coins become unusable including all the purposes outside the circulating supply.

Let’s take a look at how Coin Burn actually takes place:

A coin holder will ask the burn function that they want to burn a specific amount of coins.
The contract will then confirm that the person has the specific coins in their wallet and also the number of coins said is valid.
If the person does not have enough coins, or if the stated number is invalid (e.g., 0 or -5), because only positive numbers work, the burn function will not be performed.
If they have enough coins, then the coins will be deducted from that wallet. Then the total supply of that coin will be updated and the coins will be burned.

All coin burn transactions are recorded on the blockchain, which means that they are totally transparent and anyone is able to check that the coins have been destroyed. The burning transactions are public, unchangeable and permanently recorded on the blockchain.

Why Burn Coin?

Coin burn is generally done for purposes such as: making new tokens or coins and bringing them to the market, for rewarding the token or coin holders and for destroying unsold tokens or coins after an ICO i.e. Initial Coin offering. By decreasing the number of coins in supply in the market, developers and miners hope to make the tokens that remain in circulation rarer and, hence making it more valuable in the market.

Coin Burn is a process which is permanent, hence irreversible. Once you perform the burn function to burn your coins, they will be destroyed permanently. After that, it will be impossible to recover those coins. So, coin burn is a good tool and has its advantages but is quite risky too. Therefore, if you are going to perform Coin Burn, then prepare yourself and have proper guidance before attempting it.

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