Introduction To Cryptocurrency Burning

WHAT IS CRYPTOCURRENCY BURNING

Cryptocurrency burning can be defined as a process whereby a user is obligated to remove tokens from distribution, Which then reduces the number of tokens used. The tokens are then transfered to a wallet where only recieving is accessable and sending is restricted. The wallet is outside the network, thereby the tokens Cannot be used.

_{Image Source}

Cryptocurrency users are given an address that enables them to send and receive coins. This is very similar to email addresses. You are able to send and receive emails from that special address anytime you want to. The same goes to cryptocurrencies address. The crypto network recognizes your address which enable you to perform transactions on it.

Cryptocurrencies are "burned" only when a token or coin is transferred to a wallet that can only receive coins. These type of wallets are called "Burner" or "eater" wallets. A normal cryptocurrency wallets have private keys that let you gain access to the coins you have stored; Apparently, burner wallets don't have such keys which means the coins are gone for good.

KEY FEATURES OF CRYPTOCURRENCY BURNING

• Cryptocurrency are only burned when a token is transferred to an account that only receives them.
• The wallets addresses used for burning cryptocurrencies are called "Burner wallets" or "Eater Wallets".
• Burning is effective as it decreases the number of tokens in circulation by reducing tokens from the available supply.

WHY ARE CRYPTOCURRENCY BURNED

Cryptocurrencies are burned because it helps to adjust availability and value of that cryptocurrency. For example, Central banks control the amount of currency circulating as to improve that currency's value. Here are some other reasons why cryptocurrencies are burned.

• To increase value

Do you know that companies buy back stock to reduce numbers of shares in circulation. At most, this practice sole purpose is to increase the value of shares and at the same time increasing the company's financial status. However, it doesn't work as planned and sometimes it has an opposite effect. Shares must be repurchasd as a tactic to control. Companies can use this method to prevent unfriendly seizure: the process of buying shares to assumulate majority and thus control/ownership of the company.

It's also been thought that tokens are burned to acquire similar results. In the act of reducing the of coins in supply, the people doing the burning hope to make the tokens have more value. They work to control the token supply and maintain or increase the value of their own holdings. Most cryptocurrencies companies burn tokens to achieve these goals.

• Proof of burn

Proof of burn (PoB) is one among the several Consensus algorithms administered by a Blockchain network to make sure that all working nodes agree to the valid state of the Blockchain network. A Consensus algorithms is a set of protocols that make use of multiple validators to conclude that a transaction is valid.

Proof-of-burn can also be called PoB as it's less energy intensive. It works on a principle that allows miners to burn virtual currency tokens. Which they are then given right to write blocks(mine) in coherence to the coins burnt.

To burn tokens/coins, miners are obligated to send them to a burner or eater wallet. This doesn't require any fee or resources other than the energy used to mine the tokens/coin before burning and this make sure that the network is active continuously. Based on the situation, you're allowed to burn the native currency or alternate currency, like Bitcoin. In exchange, you'll a reward in that currency.

• To promote mining balance

This practice prevent unfair advantages for early miners, the PoB system is designed in a way that promotes the periodic burning of cryptocurrencies to maintain an equilibrium between late and early users.

In PoB system, the coins creation rate reduces each time a new block is mined. This actively promotes activities by the miners, it makes it easier to burn early coins and mine new ones instead of mining one coin when mining first starts. Whereas proof of work (PoW) makes it harder to mine new coins, which then creates more difficulty for early investors or large companies to maintain majority of the coins.

IS CRYPTOCURRENCY BURNING GOOD OR BAD?
Burning takes tokens out of circulation, it's similar to stock buy-backs, it might be beneficial for the Cryptocurrency or might even backfire depending on the investor and how the supply and demand influence prices. In my opinion, crypto burning is good as it enables creation of more coins and stability of value in them. Thanks for reading..

The above was rewritten in my own words. Information gotten from....

• Source

Note: 10% payout to community account