We often read the news of some coins being burned. So, what’s coin burning? How is the coin burned? Why should the coin be burned?
Now, we’d like to answer the three questions.
Coin Burning refers to the permanent removal of coins from circulation. In other words, the coins burned are equivalent to being permanently frozen and cannot flow back into the market.
So how are the coins burned? The most common way is to put the coins into the eater address. The eater address refers to the address where the private key is lost or the private key cannot be confirmed. The address is just like black hole with the feature of only-in-no-out. The coins which have been put into the eater address cannot return to market for circulation again.
The following are the most famous eater addresses for bitcoin and Ethereum:
Eater address of bitcoin: 1BitcoinEaterAddressDontSendf59kuE
Eater address of Ethereum: 0x0000000000000000000000000000000000000000
Up to now, the eater address of bitcoin mentioned above has about 13.2 BTC. The Ethereum eater address has about 7780 ETH.
Are so many coins attractive to you? Someone may even wonder whether the coins can be cracked and “stolen” out of the address?
As we all know, the private key generates the public key while the public key generates the address. However, the address cannot derive the private key. To “steal” the coins out of the address, they can only resort to violent cracking, that is, try the private keys one by one. In the article “How Secure is Your Bitcoin?“, the difficulty of violent cracking has been introduced:
In a group of bitcoin private keys which are more than 1037 larger than the total number of sands on Earth, it’s completely incredible to try one by one and crack one private key corresponding to an address.
That’s why it is almost impossible for the coins inside the eater address to return to the market for circulation.
Then, why should the coins be burned? The main reasons are as follows:
- The cryptocurrency adopts the PoB consensus mechanism. PoB(Proof of Burn) proves the user investment on the network by burning the cryptocurrency to obtain the right of “mining” and verifying the transaction. The more coins are burned (destroyed), the greater (virtual) hashrate there will be.
- Reduce the amount of liquidity and increase the value of Token. Since the price is affected by the supply and demand relationship, if the other conditions remain unchanged, once the supply decreases, the price will rise. Some projects will burn coins to reduce the amount of circulation in the market to add value of coins. For instance, the Binance and Huobi will periodically burn some coins.
In addition, there are other reasons for coin burning, such as user maloperation or intentionally putting coins into the eater address, or the default burning address of some smart contracts.