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What is Coin Burn?

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6 months ago

Coin Burn and Proof of Burn based cryptocurrencies in general have started to get more and more attention. The idea is to reduce the supply of cryptocurrency all the time or part of the time. Whether the purpose of such a procedure is to protect against some fraud or to increase the price through the deflationary dimension is a matter of dispute.

The most popular tokens that undergo such burning are Binance Coin and CAKE. This can be a manual burning of the token or a cyclical action written in a smart contract. Such burning is most often performed by sending a given part of tokens to the address where all unnecessary tokens are sent. Such address is for example 0x00000000000000000000000000000000000000dead. This is done because it is not possible to magically remove tokens from circulation, they have to be somewhere. With BNB, on the other hand, the burning actually occurs in literal form because BNB tokens are irreversibly destroyed and cannot be recovered. This is because the Binance Coin smart contract has this feature.

An example of such a transaction can be found here: https://bscscan.com/tx/0x7b57a64363f9044501a2a1fbf61c75c345b1cb74400cd04a99eaf53c90aa1c66
A number of CAKE tokens were sent to the address I mentioned above, which will not find a second life because no one has access to this address (for now).

This burning option seems to be interesting for several reasons. Firstly, we have the certainty that the rules set in the contract will be executed, the tokens will be destroyed. Secondly, it may be a desire to increase the price of tokens. When people want more and the token is scarce then the market will make the price go up.

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