A crypto burn is the process of sending cryptocurrency tokens to a wallet that is inaccessible by anyone and is lost forever. Hence, this removes the token from circulation and slows down the inflation rates of the token. A crypto burn can be done to control the price of the token by creating a form of scarcity for it, or simply by mistake.
Due to the fact that all transactions are recorded on the blockchain and cannot be modified, everyone who views the transaction can verify that the coins were burned.
Lately, Vitalik Buterin, the co-founder of Ethereum, burned more than 90% of the Shiba Inu tokens gifted to him. In addition, after the Ethereum London Hard Fork update, about $0.5 million worth of Ethereum is being burned every hour.
Token burning is usually done by the development team of the cryptocurrency asset. One of the common ways it’s done is by sending the coins to an “eater address”: This address’ current balance is publicly visible on the blockchain, but the tokens sent there can’t be accessed by anyone. Developers burn the tokens by either buying tokens back from the market or burning parts of the supply already available to them.
Burning is often done to make a token experience some level of deflation. It’s believed that the decrease in the circulating supply often drives an asset’s price upward, attracting more traders and investors to get involved.
Proof of Burn (PoB) is a consensus mechanism algorithm implemented by a blockchain network to ensure that all participants agree about the true and valid state of the blockchain network which requires no form of energy consumption. This consensus mechanism runs by allowing miners to “burn” virtual currency tokens. Miners are allowed to complete the next block in proportion to the coins they burnt.
To burn the coins, miners send them to a verifiably un-spendable address. This process requires fewer resources and ensures that the network remains active and agile. Miners can either burn the native currency or the currency of an alternate chain, such as Bitcoin. In exchange, they are rewarded with the native currency token of the blockchain.