Want to know about one of the advantages of investing in cryptocurrency? Well, if you’re new to cryptocurrency then you’re in the best spot. If you’re looking for the definition of coin burn, Stick with this article. So,
What is coin burn in cryptocurrency?
Is there any reason for this?
What do we need to know about?
All these questions will be answered in this article. Keep reading…
What Is A Coin Burn?
It is in some ways, A regulation of the supply of a coin for some purposes which I will talk in the next minutes.
In order to understand the burn of a coin, You need to know about a basic fundamental of any cryptocurrency. The supply is.
The coin supply, Is the number of coins issued in the ICO. The coin supply divided into two categories which are total coin supply and circulating coin supply.
The total coin supply is the number of the maximum coins that issue during an ICO.
Circulating supply is the coins that already in the market to invest. for further information, These are the mined coins and rest coins in the total supply still need to mine.
If you don’t know these facts, I recommend you to follow my previous educational posts.
So the definition is for the coin burn, Is destroying some of the coins from supply. Its whether from total supply or circulating supply.
So, how are these coin burn? It’s like sending them to a black hole. sending to an “eater address” which is private keys and addresses cannot obtain for forever.
What Are The Reasons For The Coin Burn?
There are a few reasons for the coin burning or coin burning mechanism. Why I called it a “mechanism”?
Here’s a thing, Project developers tend to go for a coin burning to plan their cryptocurrency project for the future. Simply, to increase the value of coins.
Even when a project is in the ICO stage, developers manage to burn unsold tokens during the ICO.
Let me explain these.
To Increase The Value Of Coins
It doesn’t need expert knowledge to understand this. It’s a basic action of any market.
Now you already know the term “Circulating Supply”. Every cryptocurrency has a price. it depends on the demand of the coin and how much coins in circulation.
The total market cap of a coin divided by circulating supply of the same coin = The price.
It is the simplest way that I can explain to you.
Assume you are the developer of that coin. What if you reduce the circulating supply? It will directly affect the price.
Now you know why developers go for a coin burning mechanism. To increase its price.
ICO Token Burn
Firstly, you need to know the difference between a coin and a token.
ICO (Initial Coin Offering) take place to introduce a new coin to the cryptocurrency industry.
Initially, people can buy coins from an ICO. End of the ICO, if unsold tokens left, developers manage to burn all the unsold tokens. It is the most common option used by ICOs.
Why are they manage to burn? Same reason. To increase its price.
In Changing Of Blockchain
You know there are different blockchains in cryptocurrency such as bitcoin blockchain, ethereum blockchain, etc.
If you don’t know what is a blockchain. follow this article.
Different blockchain uses different technologies. Except for the basics.
In the case of changing the blockchain, the old blockchain coins will be burnt and start a new blockchain with new coins.
The perfect example is TRON(TRX). Tron project changed ethereum based blockchain to its very own blockchain called MainNet.
What Do We Need To Know About?
There are some key factors that need to know when a coin burn happens. so I will show you them by using the above things.
When circulating supply coin burn that I talk earlier, The price will definitely increase. So if you have coins that a coin burn event planned in the future, Hold them. I recommend.
If you keeping coins that scheduled to burn in case of blockchain change, You may have to swap the old coins to new coins.
I will write an article for “what is coin swap” in the future.
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