COIN BURN – Pi Capital Union
Hi! Today we will look at what does the phrase COIN BURN mean?
And, more importantly, how to make money using the knowledge of this term?
Coin burn means sending some of the source cryptocurrency to a public address from which these specific coins can never be spent, because the private keys of such an address are not available. This public address must be accessible in the blockchain so that anyone can view such a transaction.
Coin burn would typically be used when you are trying to achieve a number of different things, including:
• Creating new tokens or coins (using a proof-of-burn algorithm)
• Or for awarding coin holders or tokens
• Or to destroy unsold tokens or coins after an ICO
So, the proof-of-burn algorithm is a method of distributed consensus and an alternative to proof-of-work and proof-of-stack.
The idea is that the miners/participants should show evidence that they burned some coins, i.e. sent them to a reliably inaccessible address. This consumes no resources other than the base asset being burned.
If we consider the first goal of coin burn — how this algorithm is used to create new tokens or coins. It is implemented, for example, in the crypto Counterparty — XCP. In this example XCP was neither minted nor sold to ICO.
Rather, it appeared using the proof-of-burn method. This means that a certain amount of Bitcoin was sent to an unavailable address, and in exchange for these Bitcoins, Counterparty XCP tokens were generated in a block chain of Bitcoin. This would be seen by clicking on the XCP Proof-of-Burn link.
Because Bitcoins have been burned, they will never be spent again, giving XCP some value. This method of coin production also provides a fair and equal opportunity for all (including the project founder).
Another reason to use coin burn is for awarding token/coin holders. Coin burn, or burning coins by sending them to an inaccessible address, is applied by various cryptocurrencies. This is done to create an economic deficit to benefit from this asset simply by owning the name. Such a method was developed because rules in some countries, such as the United States, prevent different cryptocurrencies from paying the equivalent of dividends as rewards to asset holders.
Therefore, we have created another way to reward our investors, and it is to create a supply deficit, hence an increase in demand, which should be reflected in the valuation of the price of each token or coin held by the investor.
Binance uses this method every quarter for BNB.
The next point where coin burn is used is to destroy unsold tokens or coins after an ICO. This is done to maintain a stable market and to ensure fair play.
Typically, the price of a coin or token after an ICO rises. And in a scenario where not all coins or tokens are placed through the ICO, this gives the company a certain amount of free money they can get by selling the remaining coins or tokens on the exchange at a high price. To avoid this scenario, unsold coins or tokens are sent to an inaccessible address.
The Neblio team applied exactly this method when it burned unsold NEBL tokens.
At first sight this might seem to be rather technical and a complicated procedure but it can be seen that there are a number of very good reasons for using coin burn and there are benefits to each. I hope that you will now understand this term a little better.
More on another topic soon.