The term coin burn describes the permanent removal of coins from the circulating coin stock. This ensures a permanent reduction of the total supply on the market. The Coin Burning procedure is part of almost every crypto currency and is intended to counteract a decline in value.

Coin Burning describes a mechanism to eliminate coins in a block chain network. In the course of this process, coins are sent to so-called “eater addresses”. This is an address without private keys. All tokens that are located at such an address are irrevocably lost, so these tokens are no longer in circulation. By recording all transactions, such elimination is publicly traceable.

Reasons for a reduction of the offer
A reduction of the total offer must of course provide added value for the entire network, as this is sustainable and irrevocable. The following approaches illustrate the added value of the process:

More effective consensus mechanisms
Especially crypto currencies based on a proof-of-burn procedure (POB) adapt this approach. The POB is a unique approach for generating consensus within a distributed network. The miners and users of the network have to destroy a part of the circulating inventory.

value increase of the crypto currency
Crypto currencies follow the principle of the market economy, the price is calculated from supply and demand. The scarcity of a resource is a central economic concept for determining the price of an asset. For most crypto currencies there is a defined maximum number which cannot be exceeded. An increasing demand for a currency results in increasing prices. Destroyed bitcoins or lost wallet keys also contribute to a price increase.

Protection against spam
The destruction of coins is a natural mechanism to protect against Distributed Denial od Service Attacks such as spam transactions.