What Is Cryptocurrency Burning?
Cryptocurrency burning is the process of intentionally removing coins from the circulating supply of a specific token.
This deflationary process is done to decrease the supply of tokens, adding more value to the ones which remain. The price doesn’t increase overnight and tokens are usually not burnt in bulk.
How Does Cryptocurrency Burning Work?
Burning a coin or token is done by sending them to a “burn” or “eater” address[1]CoinDesk – What Does It Mean to Burn Crypto?, a wallet that cannot be accessed. This removes the coins from circulation as there is no way to access the funds inside of the wallet.
Can Someone Access A Burn Address?
Burn addresses cannot be accessed, there are several ways to ensure the tokens inside stay there.
The burn address may be located outside of the network, meaning coins, once sent, are removed from the entire blockchain itself. The burn address may be encoded to only be able to receive tokens, not send or transfer them.
Some of these addresses don’t even have private keys attached to them or have an invalid private key. The wallets are made with keys too long to generate a valid signature on the blockchain and these are made public to verify the wallet’s keys are invalid.
What Is Proof-of-Burn (PoB)?
Proof-of-Burn (PoB) is a consensus algorithm where validators burn tokens to confirm transactions.[2]IOHK – Proof-of-Burn In exchange for burning coins, validators are given rewards in the blockchain native currency.
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