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Token-burning cryptocurrencies have recently become very popular, and a number of well-known blockchain projects have destroyed large amounts of digital assets. Although a number of cryptoprojects use different burning schemes, the overall effect is usually the same, as destroying tokens reduces the circulating supply.
Blockchain projects burn tokens for specific benefits and purposes
Token burning has become a popular trend, and articles often highlight specific projects such as Ethereum, Terra, Shiba Inu and many others that have destroyed large amounts of their own tokens.
$SHIB burn portal is a huge success. 👺🔥
– Shiba Inu to $1 (@ShibInform) April 28, 2022
Six days ago, Bitcoin.com News reported that developers Shiba Inu (SHIB) had launched a burning portal that allows Shiba Inu holders to burn their SHIB stash. In this particular case, SHIB burners are rewarded for destroying their tokens. The current SHIB burn rate is about 180.18% in the last 24 hours.
1/ Voting on the chain for Propositions 133 and 134 to burn 88.675 million Pre-Col-5 $LUNA in the community pool (~$4.5 billion), exchange for $UST with a swap on the chain and reducing the oracle_rewards_pool distribution window from 3 to 2 years, has now passed.
– Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) Nov 10, 2021
During the first week of November 2021 Terra (LUNA) the development team burned 88.7 million LUNA and projects like Ethereum (ETH) are burning native tokens every minute of the day. For example, more than 2.17 million ethershave been permanently destroyed since the implementation of Ethereum Improvement Proposal (EIP) 1559
76,100 #BNB ($35,060,900) were burned after the BEP-95 real-time burn upgrade 🔥
– BurnBNB (@BurnBNB) April 27, 2022
Like SHIB, Ethereum also has a burn rate, as metrics show, in the last 60 minutes, 135 ethers have been burned, and in the last 24 hours 4,477 ETH have been destroyed. The digital asset Binance BNB has a planned burn process, and the project has destroyed coins to reduce the total supply.
Cryptocurrency burning means sending tokens to zero address
This process has been used by a number of cryptocurrency network developers and loved by the community. Burning tokens, however, does not mean that the tokens will be engulfed in flames in the literal sense.
Most projects burn tokens by simply sending digital currencies to a dead address This address is simply a black hole for funds because no one has private keys to the addresses used in the destruction process, which is simply sending coins to a dead address.
Once the tokens are sent to the null address, the coins cannot be recovered and will never be used again. Digital currency burning schemes have been around for years, and Project Counterparty is one of the oldest that has implemented the idea of a burning mechanism.
Counterparty’s Proof-of-Burn
In fact, Counterparty burned bitcoin (BTC) to launch the project. “All XCPs that will ever exist were given out proportionately to those who recognized the value of Counterparty and were willing to ‘burn’ their bitcoins to participate in Counterparty,” the project explains in a blog post about the proof-of-burn process.
{Token burning has a number of advantages, and some stable coin algorithmic protocols use the burning process to autonomously distribute stable coin assets. While Counterparty used proof of combustion to create XCP, most blockchain projects burn coins to reduce the overall supply of tokens.
In a sense, token burning is similar to stock buybacks in traditional stock markets. Taking coins out of circulation makes the crypto-asset scarce, and the scarcity is aimed at making the other coins in circulation more valuable.
What do you think of crypto-asset projects that use a proof-of-burn process or burn tokens to reduce the overall supply of coins in circulation. Let us know what you think about this in the comments section below.
Image Credits: Shutterstock, Pixabay, Wiki Commons
