Are you interested in earning money from cryptocurrencies? Of course you are, and the best way of earning money from these coins is through buying cryptocurrencies that are self-burning. Burning is yet another way to earn money from cryptocurrencies.
For those of you who are in the know of proof of work and proof of stake, coin burning is a new process named proof of burn that we will go through in this article.
Bitcoin Address Burn
Coin burn in cryptocurrencies means sending a portion of the coins in an address to another public address which those certain coins can never be spent due to the unobtainable private keys.
A public address should always be available for anyone to view to such a transaction.
Coin burn is done for the following reasons:
- The creation of new tokens
- Rewarding tokens or coin holders
- For the destruction of unsold tokens or coins after an ICO
We are going to go through each one at a time through the help of an example that you might be able to relate to. However, we’ll also need to explain the proof of burn mechanism and how it works. It should be noted that there are numerous types of proof of burn, but we will provide just one simple explanation for all.
Proof Of Burn For Bitcoin & Cryptocurrency Coins
Proof of burn is a mechanism for distributed consensus as an alternative to both proof of work and proof of stake. Proof of burn can also bootstrap one currency off another.
The principle of proof of burn is so that miners and participants can show proof of work that they have burnt some coins, which means sending them to an unspendable address. This process could be expensive from an individual point of view, which is just like proof of stake. However, it does not consume resources other than the underlying asset.
Right now, each proof of burn cryptocurrency works through burning proof of work mined cryptocurrencies. This means that the ultimate source of scarcity is proof of work mined fuel.
In some instances, you can also get the privilege of mining through blocks with the amount of coins that burnt. Think of burning as a virtual mining.
The simple form of proof of burn illustrated above is often implemented in the Counterparty cryptocurrency named XCP. XCP is neither mined nor issued in an ICO.
Rather, XCP came to be through the use of a proof of burn method. This means that a particular amount of Bitcoins were sent to an unspendable address. In exchange for these BTCs, Counterparty tokens (XCP) were generated on the Bitcoin blockchain. You can see this using blockchain explorer.
Burning was done to avoid the hassles of pre-mining or ICOs and also for the use of renewable energy which is already spent in generating a Bitcoin.
As the Bitcoins were burnt, this means that they can never be spent again, which gives XCP some indirect value. Consider it like trading gasoline for CNG, where both are the fuel. This method of coin generation additionally gives a fair and equal opportunity for everyone.
Rewarding Token And Coin Holders
Proof of burning by sending them to an unspendable address is applied to other cryptocurrencies. This is done on purpose to afford a greater economic scarcity so that token HOLDers can increase their value holdings.
This is designed to work as rules in particular countries in the USA discourage the use of different cryptos to dispense dividends as rewards to its token investors.
Therefore, a different way to reward investors through the creation of scarcity of supply is burning cryptocurrencies.
Usually the tokens or coins will go up in value after an ICO or token sale. And in the case when not all of the coins or tokens or coins are sold, it gives the business a large amount of free of money that they can get by remaining amount of tokens or coins at a higher price.
How “Proof of Burn” Works Conclusion
Coin burn or proof of burn has numerous applications, which depends on the particular scenario that you want to use the coins for. There are a few cryptos that have used proof of burn to avoid ICOs or token sales.