The Beginner’s Guide
In this article, What is Coin Burn? Let’s talk about the content. The permanent removal of cryptocurrencies from circulation is called coin burning. Coin burning transactions have a transaction history in the block where the coins are located. It provides transparency to investors. The goal may be to reduce the aggregate supply in the market. It is a transaction in the cryptocurrency market. There cannot be a similar transaction in the money market. Different strategies are applied to reduce the aggregate supply in the money market. Coin burning is a smart contract function. To the question of whether burning coins is harmful, we need to state that coin burning operations are carried out for various purposes.
How to Coins Burn?
The BNB contract is a function known as the burn function. This feature is always available to everyone. By requesting functions, a certain number of coins can be permanently removed from the circulating amount. Coin burns are recorded as a transaction on the blockchain. Transactions are transparent. The destruction of the coins is verifiable by anyone. After the coin burns are carried out, Binance makes an official statement stating the amount of coin burned. All BNB coin burns can be verified from the Ethereum blockchain browser. To the question of what it means to burn a coin and how it is done, we can answer that the burning processes are permanently recorded, open to everyone, and irreversible.
How does it work?
The token burning event consists of the following stages:
- The owner of the coin indicates that he wants to burn a certain amount of coins and requests the burning process.
- The contract confirms that this person has a coin in his wallet and that the specified number of coins is valid. Only positive numbers are valid.
- If people do not have enough coins, burn functions cannot occur if certain numbers are not valid.
- When deciding on the amount of coins burned, the decision is made according to the BNB transaction made in the last 3 months.
- If there are enough coins, the coins will drop from the wallet.
- To burn the coins, the burn function is started. Coins are permanently destroyed. The amount of coins is updated and burned.
Why Is Coin Burning Important?
Since the value of cryptocurrencies with decreasing total supply will remain the same, the unit price will rise. Let’s say the total value of the cryptocurrency is $1 million. Let the total supply be 1 million units. When 250k tokens are burned, the total supply remains at the same level, although the total supply drops to 750k. This causes an increase in the unit prices of cryptocurrencies. In case of an increase, the interest of new investors is also attracted. In this way, greater ups and downs occur. For this reason, coin destruction processes are very important in the cryptocurrency world. In this case, the value of the tokens will increase by 1/3 more. To the question of what is the use of burning coins, we can answer that new coins can be created by burning coins. The burned coin value is transferred to the new coin.
The coin can also be burned at the end of the ICO process. Coin-burning transactions are recorded in the past and provide transparency in transactions. The fact that it is transaction-specific to the cryptocurrency world increases the importance of burning. At the end of the ICO period, the coin can be burned. When the ICO process is over, the producers burn the unsold coins. The aim here is to create an environment of trust. The coin is burned to cover the transaction fee. For example, the XRP coin Ripple is paid for each transaction by partially burning the coin.
Why Burn Coins?
The coin burning process is a deflationary mechanism. Projects do this to ensure regular value growth, to encourage them to hold the trader’s coin. To the question of what it means to burn a coin, we can answer that the first purpose that comes to mind is to reduce the current supply and increase the value of the coin. As there will be less supply of money in circulation, the value of each token will increase more. Cryptocurrencies, especially Bitcoin, contain limited supply.
It is possible to increase or decrease the token supply with projects. In this way, price balancing can be done. Binance’s periodic burns are also examples of ICOs burning coins when the project is completed.
Bug fixes occur with coin burning. Tether accidentally created $5 billion worth of coins. Incorrectly generated coins were burned in order for USDT to reach the required rate.
Some projects are done to avoid unwanted operations and create a layer of security. XRP coin holder Ripple charges and burns every transaction to protect the system against overloads, DDOS attacks.
Which Cryptocurrencies and Exchanges Are Coin Burned?
Many cryptocurrencies such as TRON, TWT, EOS, VeChain are burned at regular intervals in many exchanges, especially Binance, which is one of the most important crypto currency exchanges. The burning process is generally compatible with tokens and coins. TWT, whose supply has decreased from 90 billion to 1 billion, has increased to 100%. To the question of whether coin burning affects the price, we can say that it will affect purchases in the medium and long term. In the period when the burning process takes place, the specific demands for these cryptocurrencies are also increasing. Both a decrease in supply and an increase in demand will have a two-way positive effect.
Does Burning Coins Increase Price?
Projects that burn coins gain significant advantages. Token holders get their share of it. Burned coins prevent inflation. This is how stablecoins are sustainable. When price stability is achieved by burning coins, users will want to keep the coins. Network uptime and bandwidth will be kept at healthy levels.
Burning unsold tokens in the ICO project instills confidence in users. Burning coins in the Ripple project will increase the security of users as well as allow transactions to be carried out quickly. We can say that the value of the coins will increase to the question of what happens if the coin is burned. The fees paid for fast transactions increase users’ trust in the network.
Purposes of Use of Coin Burning Operations
Coin burnings are not done just to decrease the supply and increase the value. It is used to establish a reliable consensus mechanism to add new data as well as to verify transactions made on the blockchain. Coins are also destroyed to gain mining rights. As the coin is burned, the virtual mining areas expand.
The constant burning of coins will reduce the number of miners over time, reducing competition as well. In this way, it is expected that the need for resources will decrease. We can answer the question of what are the benefits of burning coins, what is the use, increases both the price and demand of coins. To burn more coins, investment is required.
What is the Background of Burning Coins?
It is similar to the idea of buying back stock of listed companies by burning cryptocurrencies. It uses the coins in hand to get the coins back, thus reducing the amount of coins in circulation. Is it good to burn coins, what are the consequences questions are always asked. It helps to strengthen the value of outstanding shares. It also helps to increase the earnings of coins. When the number of coins in circulation decreases, the ratio of net income to the amount of coins increases.
What is Coin Burn? We have come to the end of our article. Stay tuned to SinceCoin to learn more about Bitcoin and other cryptocurrencies.