What is a Coin Burn and how does it affect cryptocurrencies?

What is a Coin Burn and how does it affect cryptocurrencies?

Many cryptocurrencies have applied this model to their design in order to increase in value over time. Others do it manually. But what is a coinburn and how does it affect these cryptocurrencies?

What is a Coin Burn?

A Coin Burn is an event where a cryptocurrency permanently removes a specific number of its coins from the circulating supply (either manually or by design). This process results in a reduced total supply for a certain cryptocurrency, which inherently increases its value and scarcity.

What are the different categories?

There are two main categories when it comes to Coin Burns:

  1. Integrated at the protocol level – This category refers to the coin burning models that have been added to the core protocol level of a certain blockchain by design. In other words, any Coin Burn that occurs automatically, due to a coin’s design, is part of this category.
  2. Implemented as an economic policy – This category is not integrated into the code/protocol layer of a cryptocurrency. Instead, it is implementation is initialized by the cryptocurrency project itself, as economic policy or event. It could be done in a “once-off” fashion or repeated in a periodic timeframe.

Popular Coin Burn example

One of the most popular examples is the one of Binance, which in this case is a Coin Burn process that happens manually, instead of being hardcoded in the network’s protocol. 

The company buys back a certain amount of tokens (based on the number of trades that occurred on their platform) every quarter and subsequently removes them from circulating supply. Their goal is to lower their total supply from 200.000.000 coins to 100.000.000 over a longer period of time.