Explained | Coin Burning: How is it done & why?

cnbctv18.com:

Crypto burning has been in the spotlight over the last few weeks, mostly due to the incessant burning of Shiba Inu tokens (SHIB). The developers of this meme coin are on a burning spree to save the coin from devaluation in a highly volatile crypto market.

So far, close to 260 billion SHIB tokens worth $25,000 have been burnt, and a new burning mechanism is also underway to take this strategy forward.But what is coin burning?When a certain number of crypto tokens are said to be burnt, it means they have been permanently pulled out of circulation. This is done by simply transferring those tokens to a ‘dead wallet’.

The private key for this wallet is unknown, so the crypto is lost forever.But why would developers burn their cryptocurrency?When there is excessive cryptocurrency flowing in the market, the price of that token remains low as the demand never exceeds the supply. In such a scenario, burning a portion of the cryptocurrency acts as a ‘deflationary’ move.

The scarcity of the token rises and triggers a price appreciation of the remaining tokens in circulation.Also read: To NFT or not: The case of Paramount’s Star Trek and Ubisoft’s Ghost Recon BreakpointOne of the most famous crypto burns was when Ryoshi, the Aliased creator of the Shiba Inu, gave Ethereum founder Vitalik Buterin 50% of the SHIB supply upon its launch. However, in 2021, Buterin burnt 90% of his tokens and donated the remaining to charity, citing that he did not want to become “the locus of power”.