In recent times, the trend of token burning is very popular and some projects blockchain famously destroyed large amounts of digital assets. While projects have different burning plans, the overall effect is often the same, as token destruction reduces the circulating supply.
Blockchain projects burn tokens for specific benefits and goals
Last week, the developers SHIB already introduce a burning port, allowing the holder to burn the stock SHIB their. In return, those who burn SHIB rewarded for token destruction. SHIB currently has a burn rate of about 180,18% in the last 24 hours.
“On-chain votes for proposals 133 and 134 to burn 88,675 million Pre-Col-5” LUNA in the Community Pool (~$4.5 billion), in exchange for UST via on-chain swap and reduction of oracle_rewards_pool distribution from 3 to 2 years has been adopted!”, Terra tweets.
In the first week of November 2021, the developer team LUNA burned 88.7 million LUNA and projects like Ethereum burn native tokens every minute of the day. For example, after making an Improvement Proposal Ethereum (EIP) 1559, more than 2.17 million ETH has been permanently destroyed.
Like SHIB, ETH also has a burn rate, as the figures show 135 ETH burned for 60 minutes and 4,477 ETH in 24 hours. BNB There was a scheduled burn and the project destroyed the coin to reduce the overall supply.
Burning cryptocurrency is simply sending tokens to an invalid address
This process has been used by several developers and supported by the community. However, burning tokens does not mean that the tokens are literally engulfed in flames.
Most projects burn tokens just by sending digital coins to a dead address. This address is simply a black hole of funds because no one has the private key, aka sending money to the empty address.
Once the tokens are sent to the empty address, no one can use them anymore. Cryptocurrency burning schemes have been around for many years now, and the Counterparty project is one of the oldest to implement the idea of a burning mechanism.
Actually, Counterparty burned BTC to start the project.
“All the XCPs that ever existed were respectively made available to those who realized the value of Counterparty and were willing to “burn” Bitcoin theirs to participate in Counterparty”, project explain in a blog post about the PoB process.
Counterparty's Burn Address
Token burning mechanism brings a lot of benefits and several protocols stablecoins according to the algorithm that uses combustion to distribute stablecoins autonomously. While Counterparty uses proof-of-burn to launch XCP, most projects blockchain all burn coins to reduce the overall supply.
In a way, token burning is similar to buying back shares in the traditional stock market. Removing coins from the circulating supply causes cryptocurrency become scarce, in order to make the rest of the coins in circulation more valuable.