What is it?
A "Coin Burn" occurs when Cryptocurrency is sent to a wallet or address which is inaccessible and from which funds cannot be retrieved or spent due to the lack of available private key. For a Coin Burn to be successful, the private key for the wallet that funds are sent to must not be obtainable by any party without the need for a hard fork/chain split, and the funds must be sent in a publicly traceable manner to ensure compliance (this is the default for many blockchains including Bitcoin, Ethereum and Litecoin).
Why is it done?
A Coin Burn is typically done for one of three reasons:
- Making new tokens or coins (proof-of-burn).
- Rewarding the token or coin holders by causing the price-per-unit to increase due to lower supply.
- Destroying unsold tokens or coins after an ICO or token sale.