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Cryptocurrency burning, also known as coin burn is a process where users remove tokens from circulation, effectively reducing their availability. This is achieved by sending the tokens to a specific wallet address that can only receive them and cannot be used for other transactions. These addresses are often referred to as burner or eater addresses.
Cryptocurrency addresses serve the same purpose for sending and receiving digital currencies. When a token is sent to a burner address, it is effectively removed from circulation since the address lacks a private key to access the tokens. As a result, the tokens become unusable and are considered permanently gone.
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There are various reasons why cryptocurrency burning occurs. One reason is to intentionally reduce the token supply in order to increase its value and make it more rare. This practice is similar to public companies buying back their shares to improve the financial performance and value of their stocks.
Although there is no conclusive evidence that burning cryptocurrency tokens directly increases their value, it can impact investor and user sentiment, potentially influencing price fluctuations. Developers may choose to burn tokens with the aim of achieving these effects and enhancing the perceived value of the cryptocurrency.
What is Proof of Burn (PoB)?
Proof-of-burn is a consensus mechanism implemented by certain blockchain networks. It ensures that participating nodes agree on the valid state of the blockchain. PoB operates by allowing miners to burn virtual currency tokens and the right to mine new blocks is granted proportionally to the amount of cryptocurrency burned. This mechanism maintains the networks activity and quickness without excessive energy consumption.
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