Community Forex Questions
How does coin burning work?
The process of burning coins in the cryptocurrency market can take many forms. The important thing to remember is that after a coin burn, the total supply of a token is permanently reduced.
Some coin burns are similar to stock buy-backs, which occur in the equity markets when a publicly traded company buys back some of its stock, reducing the total number of outstanding shares and increasing earnings per share. Following this process, major stakeholders in a cryptocurrency buy back some of the existing supply and transfer it to a burn address. As a result, the coins are no longer in existence and have been burned.
Alternatively, some coin burns are planned and incorporated into the protocol of a digital currency. In some cryptocurrencies, transaction fees are burned, reducing the circulating supply for each transaction that occurs on the network.
Another method is to use smart contracts, which include a burn function in the protocol of a cryptocurrency. Because anyone can call a burn function to 'destroy' some of their tokens, this method ensures that tokens are easily burned. The smart contract is sometimes triggered to maintain supply and demand balance.
Some coin burns are similar to stock buy-backs, which occur in the equity markets when a publicly traded company buys back some of its stock, reducing the total number of outstanding shares and increasing earnings per share. Following this process, major stakeholders in a cryptocurrency buy back some of the existing supply and transfer it to a burn address. As a result, the coins are no longer in existence and have been burned.
Alternatively, some coin burns are planned and incorporated into the protocol of a digital currency. In some cryptocurrencies, transaction fees are burned, reducing the circulating supply for each transaction that occurs on the network.
Another method is to use smart contracts, which include a burn function in the protocol of a cryptocurrency. Because anyone can call a burn function to 'destroy' some of their tokens, this method ensures that tokens are easily burned. The smart contract is sometimes triggered to maintain supply and demand balance.
Coin burning is a process used in cryptocurrency to permanently remove a certain number of coins from circulation, reducing the total supply. This is typically done by sending the coins to an irretrievable address, often referred to as a "burn address," where the coins cannot be accessed or spent. The primary goal of coin burning is to create scarcity, which can potentially increase the value of the remaining coins. It can also be used as a deflationary mechanism, counteracting inflation and incentivizing holding over spending.
Cryptocurrencies like Binance Coin (BNB) and Stellar (XLM) have implemented coin burns as part of their economic models. For instance, Binance conducts quarterly burns based on trading volume. Coin burning can also be used in initial coin offerings (ICOs) to manage unsold tokens, or in decentralized applications (dApps) as a way to manage in-app currency.
Cryptocurrencies like Binance Coin (BNB) and Stellar (XLM) have implemented coin burns as part of their economic models. For instance, Binance conducts quarterly burns based on trading volume. Coin burning can also be used in initial coin offerings (ICOs) to manage unsold tokens, or in decentralized applications (dApps) as a way to manage in-app currency.
Jan 10, 2023 01:25