Cryptocurrency exchange WazirX on July 30 undertook the 5
th
Coin Burn for its token WRX, a process through which it removed 7.33 million tokens from circulation.
Below are some key facts about the event, and coin burning in general.
Coin burning is an activity conducted by developers or miners to remove tokens of any cryptocurrency from circulation. The decrease in market circulation of a token can increase the price of the rest of the coins in circulation. Coin burning also protects against spam or DDoS attacks, and it helps to destroy unsold ICO tokens.
The coin burn is done by “sending a portion of the coins to an ‘eater address’, which is often referred to as a ‘black hole’ since the private keys to that address are not obtainable by anyone.
Therefore, any coins sent to an eater address are unrecoverable and cannot be used again. "These coins are effectively taken out of circulation and are publicly recorded and verifiable on the blockchain," says a WazirX blog post.
WazirX has been undertaking coin burns
at the end of every quarter for five quarters now. For the most recent coin burn, the value of the 7.33 million tokens removed stood at Rs 61 crore, or $8.2 million. From the first through to the fourth coin burns, WazirX has burnt a total of 21.7 million coins worth $24.4 million, or Rs 183 crore.
As per the whitepaper behind WRX, WazirX has pledged to burn WRX tokens based on the trading volume on the exchange’s crypto-to-crypto platform until it destroys 10 percent of WRX. “We’ll eventually burn 100 million WRX tokens,” the whitepaper says, meaning the exchange is one-fifth of the way with its coin burning exercise.
During the April-June quarter, WazirX also crossed over $14.04 billion in trading volume, compared to $6.1 billion in the previous quarter, the highest ever by a crypto exchange in India.
WazirX’s parent Binance also undertakes regular coin burning for its Binance Coin. In its most recent exercise, Binance burnt 1.2 million coins, worth $393 million.
It is not just exchanges that burn coins. Ethereum Co-Founder
Vitalik Buterin
recently burned
Shiba Inu
coins worth $6.7 billion, or 90 percent of his holdings in the token, saying he did not want to be a “
locus of power
”.
In April 2018, mining pool Antpool announced that it would burn 12 percent of Bitcoin Cash tokens it had received as part of its mining fees. This caused a spike in Bitcoin Cash price. However, not all coin burning exercises result in an immediate spike in the price of a token.
Coin burning is comparable to the practice of publicly traded companies buying back stock. Some companies will buy shares of common stock to reduce the total outstanding shares, increasing its earnings-per-share, which could help drive up the share price.
