The latest cryptocurrency trend to arise in the market is called coin burn, or proof of burn for some smaller alt-coin users. It is a new trend that is designed to limit the number of Bitcoin (or another cryptocurrency) in circulation to create artificial scarcity and jack up the price. Here is a brief look at the practice and why some people engage in it.
Simply put, coin burn is sending your cryptocurrency to a private wallet that has no known access key. People do this for two specific reasons. The first is that they are interested in raising the price of the currency they are trading, so they would prefer to “burn” some of their holdings or make them unusable to increase the trading price of the coin.
The second and more common reason is altcoin networks asking miners who want to participate in the network to provide proof of burn. Proof of burn is a new protocol being used by altcoins to reduce the available supply of competing coins like Bitcoin. Burning coins eliminate them from the pool, and because cryptocurrency has a set amount of coins that can be generated, it increases the value the remaining coins in a wallet. Altcoin owners often reward their miners in their currency when they provide proof of burn for competing cryptocurrencies.
So you are probably asking yourself if you should engage in this practice to increase the value of your current holdings. Here are a few reasons why you probably should not adopt this new trend.
Coin burning breeds mistrust among users of the network because it can never be 100% proven that the so-called private wallet that the funds were sent to is non-accessible. You can create a private wallet and lose the keys yourself, but that is the same as setting a dollar on fire to watch it burn.
Coin burning should be left to those who want to directly influence the growth of a cryptocurrency by encouraging the death of another. For the average investor who is just looking to trade Bitcoin, Ethereum, Ripple, or any other cryptocurrency it is not a feasible strategy since it literally involves throwing your money away and that is something we do not recommend.
As we already know, not every trend is worth following, and it goes without saying that coin burning certainly falls under that category.