Why do cryptocurrency projects 'burn' coins?

The most straightforward reason for a coin burn is to reduce the number of coins in circulation or to limit the supply.

But, that’s not the only reason.

Cryptocurrency projects undertake the burn process so that:

  • There can be a more effective consensus mechanism
  • A safeguard against Distributed Denial of Service Attack (DDOS) can be put in place,
  • Spam transactions can be prevented
  • A long-term commitment from the cryptocurrency project can be assured

The burn also ensures that the crypto has a “deflationary” feature. Which means, assuming the supply of the coin is fixed (or lower than the rate of burn) and the demand for the coin keeps increasing, the burn ensures that the coin becomes more valuable in time. The idea is to reduce the supply to make the coin dearer.

I think this is the most important thing because unlike the fiat currency (the supply of which keeps on increasing, and thus inflation), the cryptocurrency can follow the modern monitory theory to never have real debt - something which also makes CBDCs interesting.