Explained: What is coin burning in the cryptocurrency universe? – Economic Times

After the London Hard Fork update, the burning of Ethereum tokens had become the talk of the town among crypto lovers. Here is a look at what it means to burn a coin.

What is coin burning?It is the act of sending cryptocurrency tokens to a wallet that has no access key. Without the private key, these tokens cannot be accessed by anyone and are lost forever.

Recently, Vitalik Buterin, the co-founder of Ethereum, burned more than 90 per cent of his Shiba Inu tokens. After the London Hard Fork update, close to $0.5 million worth of Ethereum is being burned every hour.

Which coins can be burned?All cryptocurrency coins can be burnt. The decision to burn tokens is usually vested in the developer team of the coin. Sometimes, coin burns can be initiated by the core community also.

How is a coin burnt?The portion of the coins that is being burnt can be verified on the blockchain. These coins are sent to a wallet to which no one has access. "It can be done in several ways, most commonly by sending the coins to a so-called eater address. Its current balance is publicly visible on the blockchain, but access to the contents is unavailable to anyone," said Bathija.

What is the need to burn a coin?There are different reasons to burn cryptocurrency coins. It is known to directly incentivise and reward a projects investor base. Coin burns directly affect the dynamics of supply and demand. The most notable objective is to create a deflationary effect. By reducing the overall number of tokens in circulation, these events make tokens scarce and boost the cryptocurrencys valuation.

"It drives the coin price higher. It makes existing investors pretty happy as the value of their investments move northwards," added Patel of Mudrex. "Miners of certain cryptocurrencies such as Bitcoin also become happy as the value of reward for their labour would have now increased."

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Explained: What is coin burning in the cryptocurrency universe? - Economic Times