Cryptocurrency burning refers to a process of purposely and permanently removing a number of the cryptocurrency’s tokens from circulation.
The Long Explanation
A crypto burn is a deliberate action often initiated by the project’s development team. It involves the permanent removal of a set number of tokens from circulation in order to create a ‘deflationary’ event.
These tokens are “removed” by transferring them to a receive-only wallet address. This wallet is typically outside of the currency’s network and can neither send nor swap the tokens it has received, rendering the tokens permanently useless (destroyed).
Addresses used to burn crypto tokens are known as “burner” or “eater” addresses. Like any crypto address, the balance of burner addresses can be monitored publicly. But unlike regular addresses, these addresses do not have a private key, thus rendering its tokens inaccessible.
The practice of burning is seen as the crypto equivalent of a project buying back its shares in order to reduce the amount in circulation and potentially drive the assets value upwards. This is built on the principle of scarcity and its effects on value.
There are other reasons for burning crypto tokens, though. The practice is adopted by stablecoins looking to maintain their fiat-pegged value. By algorithmically burning or minting tokens, stablecoins balance the pressure on the coins and keep its value static.
