What is a coin burn?

No, cryptocurrencies aren’t literally being set on fire. But they are being deleted from the ecosystem.

The term ‘coin burn’ is used when coins are removed from the overall supply permanently.

It also makes the coin in question more valuable due to the simple economics of supply and demand. If there’s less of them to go around, the coins that remain become expensive.

So, as an investor, a burn means your holdings will gain value.

If this sounds familiar, it’s probably because the concept is similar to a publicly traded company buying back shares – seen quite commonly in Indian IT stocks.

Ideally, when publicly traded company uses its cash on hand to repurchase shares of its common stock, it reduces the total number of shares in the market.

In doing so, the remaining shares are scarcer than before, and thus more valuable. And, in the case for publicly traded companies, a buy back can improve earnings per share since there are fewer shares outstanding to divy up the income.

“Burning” the coin does not mean destroying the coin. Its not like deleting a file in your computer - because nothing can be “deleted” from a blockchain network.

A blockchain network remembers everything!

The idea of the burn is to throw away the coin in an address (or a wallet). And the private key of this wallet is not known to anyone. Which means, these coins can never be used by anyone! And thus effectively reducing the curculating supply. The wallet address is generally known to public so that others can see the coins wasted there.

Its like taking a cookie jar and keeping it at the top of a secret mountain and throwing away the only map in the world which knows where it is. But you install a camera near it so anyone can go on YouTube and see that the cookie jar is still there.