Coin burning; if you've been in this space for a while you might have seen this phrase being thrown around but what does it actually mean?
Coin burning is the destruction of a certain amount of cryptocurrency, essentially decreasing the total supply of the cryptocurrency, a process that is permanent and irreversible.
It's just like burning cash; once it's destroyed, it's gone forever.
Why are cryptocurrencies burned?
Essentially, you'd want to ask, why would anyone want to burn their cryptocurrency?
The truth is that there are actually a couple of valid reasons why coins or crypto tokens are burnt.
• To boost the price - Now, there's this general law of supply and demand, which you might know, that a decrease in the supply of a product will cause an increase in the price, provided the demand increases or remains constant.
So, theoretically, burning a coin, which essentially reduces the supply, should increase the price, provided that demand is the same or it increases. It should be noted that if the demand decreases, it might have a little effect on the price.
• Another purpose for coins to be burned is to build trust with the community.
Usually, when a developer or a team creates a coin, they allocate a certain portion of the coins to themselves. By burning their own supply, tht demonstrate to the community and demonstrate that they are that they are dedicated to the project and are not going to dump on them.
How does coin burning work?
Coin burning could be done in two ways:
1. By sending cryptocurrency to an address that has no private key. (In the crypto world, there are two types of keys: public and private keys. The next newsletter will delve into this topic further.)
What this means is that the tokens can no longer be used because the private keys to the coins are stored in an inaccessible wallet.
Or
2. Through a burn function - In this case, coin burning is executed through the burn function implemented in a chain's (Ethereum, Solana) smart contract.
When you intend to burn a coin, you specify the quantity you want to burn.
The smart contract then verifies your wallet to ensure you have enough coins. If you don't, the transaction is not executed. If you have sufficient coins, the function executes, and the specified coins are sent to the burn address, essentially removing them from the total supply.
Popular Token Burns
$PEPE
The developers of the Pepe memecoin (PEPE) burned 6.9 trillion ($5.5 million) of the token, which was followed by a 31% increase in price.
Check it out here
$SHIBA INU
In a marketing stunt, the developers of the Shiba Inu token sent Shiba tokens to Vitalik Buterin. Buterin donated 50 trillion SHIB to the India Covid Relief Fund and destroyed 90% of the total Shiba Inu sent to him, by sending 410 trillion of the meme-based coin to a dead wallet address. The amount of SHIB burned equates to over $6 billion.
Check it out here
And that's it for today. Thanks for reading. Have a blessed weekend, and don't forget to touch grass 🌱.
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Arigato!
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