What does it mean to burn crypto? Crypto burning explained

What does burn mean in crypto? Crypto burning means intentionally destroying digital tokens or coins. Once burnt, these tokens are gone. This might seem counterintuitive to some investors. Why would a blockchain project purposely destroy some of its own tokens?

In this article, we’ll break down the reasons behind token burns, look at their effects on projects and investors, and provide insights for investors managing this complex space. What is burning crypto?

What does burning crypto mean?

Publicly traded companies often use a practice called share buybacks, where they repurchase shares from investors to reduce the number of shares in circulation. Crypto projects use a similar concept: creators and developers of decentralized platforms send a portion of circulating tokens to an address that has no private key, effectively and permanently removing them from circulation. This is known as crypto burning.

Some tokens are also taken out of circulation accidentally. A lot of early Bitcoin miners and investors misplaced their private keys, which means those assets are locked away forever, unable to be sold.

But why would anyone want to burn cryptocurrency?

Why do cryptocurrencies burn coins?

The reason for coin burning depends on the goals the project team wants to achieve. At first glance, burning coins might seem illogical — why would a project burn its own tokens to reduce its supply? That said, there are a few reasons for this approach, which we’ll walk you through, along with the benefits it offers.

Increasing token value with scarcity

Coin burning is a strategic move to stoke the value of a particular token by reducing its circulating supply. When tokens are deliberately removed from circulation, scarcity is created, typically driving up demand for the remaining tokens. This leads to an uptick in token value, thanks to the age-old dance of supply and demand.