What is coin burn? Burn coin is a term in the crypto market that refers to the burning of coins, for those who are new to crypto, hearing this term literally means using fire to burn coins. In fact, coins exist in a digital environment, so they cannot use fire to burn. So what is coin burn actually like?
1 – What is coin burn?
Coin burn, also known as coin burning, is the process of transferring coins to a wallet that contains secret private keys, these private keys are unknown, no one can access or hack.
This action is aimed at removing some of the coins from the circulating supply in the market. These burned coins will be completely discarded and cannot be recovered.
The burning of coins is usually planned by organizations and units of coin projects to coins burn every quarter. Typically Binance’s BNB is burned every quarter until it reaches 100,000,000 BNB is canceled.
2 – What problems does Burn coin solve?
The coin burn will help solve some of the following problems:
Reducing the rate of inflation: the main purpose of coin burning is to reduce the inflation rate of the coin, when the number of coins is scarce, the value of the coin will increase.
Growth in coin / token value: according to the law of supply and demand, if the number of supply decreases, creating scarcity, the value of coin / token will increase.
Remove unsold coins: If there is an unsold amount of coins in the ICO project, the project owner will burn the coin to create fairness for coin owners and the market based on the criteria of actual demand.
3 – Risk
Some investors see the burning of coins as a signal that crypto developers are looking for ways to protect investors in their tokens. But considering burning coins as a positive thing could turn out to be a mistake.
The biggest problem with coin burning is the assumption that the number of tokens in circulation will decrease and that obviously means that a virtual currency will increase in price. However, the fact that the token’s circulation source seems very loose and often difficult to recognize.
Bitcoin could be a perfect example of that. Some argue that Bitcoin’s scarcity is what makes it valuable. The amount of Bitcoin is capped at 21 million tokens, making people aware that it is very rare. But Bitcoin also creates new tokens in some cases through a hard fork. For example splitting a cryptocurrency that developers are dissenting in opting for it a future direction regarding system upgrades. That is how the Bitcoin Cash, Bitcoin Gold, and Bitcoin Private cryptocurrencies were created. Nothing can stop bitcoin, like other virtual currencies, from splitting the future Bitcoin, and that also causes people to misunderstand Bitcoin’s scarcity.
If there is a way to ensure the scarcity of a virtual currency, then burn coin will create many attractive value for token holders. But without that assurance, burn coin is also difficult to effectively create value and push the token price up.