What Does Burning Crypto Mean?
Burning crypto came out of one of the older bull runs back in 2017 and has been getting a lot of talk lately especially with certain cryptocurrencies with super large supplies.
You’re probably wondering what it means to burn cryptocurrency. Well, it’s when you pull it out, put it on a stick, and gently set it in the campfire. Haha, no, it does not mean trying to actually set cryptocurrency on fire.
We will find out what burning cryptocurrency means, and why it might be a good thing to do.
What is burning cryptocurrency?
Burning cryptocurrency means that you are permanently removing an amount of tokens from the circulating supply.
You can burn cryptocurrency by sending them to a dead wallet that is not accessible to anyone because no one controls the private key to that wallet. This means that those coins can never be sent from this wallet, but since the public key is made available the wallet can receive tokens.
Imagine having control of that wallet! Oh wait, that would ruin the whole idea of burning crypto.
You may be asking yourself, “why would anyone want to throw away their crypto into a dead wallet that no one will ever use?” And you would be asking a great question.
What is the point of burning crypto?
The main reason that you would want to burn crypto is to reduce the overall supply, thus creating a deflationary event.
When the supply of the token falls they become more scarce, harder to get and that makes them more valuable. It’s why gold is more valuable than bananas.
Burning crypto is supposed to raise the price per token.
Cryptocurrency burns are mostly done by the developer of the project. This isn’t just random people throwing away their investments for the good of the community.
Imagine a very real scenario where you can calculate price by dividing market cap by the number of tokens in the circulating supply. If a cryptocurrency has a market cap of $1 million and there are 1 million coins in circulation the price per coin would be $1. Now, imagine if a wallet burns half of those coins, 500,000, and leaves 500,000 remaining. The market cap is $1 million but now we divide that number by 500,000 and we get a price per coin of $2.
Math is like magic!
Now in an even more very real scenario, no one is burning half of the supply of a crypto. I mean that actually happened to Shiba once.
A real life example of burning crypto
Speaking of Shiba Inu, they are just so cute aren’t they? Anyway, back on topic, speaking of Shiba Inu, a very popular meme coin, this is one crypto that could definitely benefit from burning a large chunk of their supply.
Most of Shiba’s loudest investors will stand on the top of a mountain and scream “Shiba is going to reach a penny someday!” Well, sorry to those people, but it probably will not reach a penny, unless they start burning a massive amount of their supply.
Right now, Shiba is worth something like $0.00000813. That’s a lot of zeros in the wrong direction. They know one penny means only one zero, right?
Anyways, Shiba also has over 549 trillion coins in circulation. I did the math once and found Shiba would need a 5.49 trillion dollar market cap to reach a penny with the current supply.
If Shiba managed to burn a huge chunk of their coins, like 449 trillion of them, then they would only have to reach a trillion dollar market cap to reach a penny. Okay, yeah it’s just not going to happen.
Summary
Remember burning crypto is permanently removing a certain number of coins from the circulating supply. Coins can be burned by being sent to a dead wallet that no one has access to.
The reason anyone would burn coins is to make the crypto more scarce, and thus more valuable. When supply decreases and demand remains the same, the price will also increase.
Cryptocurrencies that would best benefit from burning their supply are cryptos with a very high amount of circulating coins because their prices are usually extremely low. Burning their coins can possibly help raise their price.
And poof! Now you know what burning crypto means.
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