The more I read about the world of crypto, the more I am surprised and the more I come across with further strange terms, including the simple and the complex. Among the terms that aroused my curiosity is the term burning cryptocurrency . At first, I did not understand the meaning of cryptocurrency burning. Therefore, I searched for the meaning and reasons for burning the tokens .
Burning or cremating cryptocurrencies is the process of intentionally removing coins, making them unusable once again in the future. In other words, cryptocurrencies are sent to a public address whose private keys are anonymous so that no one can ever access them.
The process is done by transferring part of the coins in circulation to an unknown wallet address, which is called a" black hole" because no one can open it and the coins no more circulate as well.
For the burning process, the holder of the copy function claims to burn an important number of coins, after that it is checked whether the holder has the specified number of coins in his wallet, and if he does not have a valid number of coins, the burning function will not be executed. Thanks to the blockchain technology, the proof of cremation can be easily verified at any time, via an alternative consensus algorithm that addresses the power consumption issue of PoW.
In fact, the smart contract verifies the coins a person has in his wallet and also validates the number of coins mentioned. The burning mechanism will only work for positive numbers.
Burning digital cryptocurrencies is adopted for several reasons, first of all, for the long-term commitment and to enable greater cryptocurrency price stability because most investors do not want to sell or spend their digital currencies for a long time. Second, burning is a natural way to protect against DDOS, Distributed Denial-of-Service attack, kind of cyber crime controlled by hackers and electronic tamperers, thus, the burning process prevent spam transactions from slowing services or clogging up the network. The third reason is the increase in the value of the newly created coin due to the increasing demand by investors. In addition to the aforementioned, cryptocurrency burning in particular, is a viable tool for preserving wealth for all participants in the network.
To conclude, it is commonly known that the price of cryptocurrencies is not fixed in the long term unless it is linked to a real asset, and thus the prices in the market decrease. The process of burning Cryptocurrency becomes may be an effective way to prevent an increase in the supply of digital currencies and an increase in demand, then an increase in their value. But, it doesn't mean that the result is absolute as soon as the burning is done. The operation of burning the tokens is like a double edged sword, its main goal is controlling the price of cryptocurrencies in general, however, this process is never sure to get the wished results of balance , because it may be valuable as well as a sort of boomerang in the same time, for nothing is surely predicted in the crypto world. Until now, still this process is ongoing each year regardless the consequences it may engender.
Thanks for taking time to read.
Resources :
https://www.investopedia.com/tech/cryptocurrency-burning-can-it-manage-inflation/
https://supraoracles.com/academy/what-is-token-burning/
