Have you ever heard the terms “minted” or “burned” thrown around in the crypto world but haven’t understood what they mean? We often hear “mint condition” in the physical asset world, but what does it mean with regards to crypto and what does burn mean? Both words are actions in crypto and have their useful applications on the blockchain.
Minting is the process by which new tokens or coins are created on the particular blockchain, while burning is the process where coins or tokens are effectively removed from existence.
The minting process is used in both cryptos and NFTs. A user deposits a certain amount of crypto, say Ethereum, and in return, new coins or an NFT is created on the blockchain. While minting is most often used to refer to the creation process in POS (Proof-of-stake) consensus algorithms, it explains how tokens are created on any consensus protocol. With mining, as new blocks are added new coins are put into circulation thereby minting coins. With staking, when you stake crypto on the platform in return you get new tokens as collateral.
With burning, it has several different applications but all of them ultimately serve the same purpose: to affect the price of the asset. Burning involves sending a large volume of the coin to a frozen address that has no keys so that the coins are lost forever and removed from circulation. There are several benefits to burning tokens or coins:
It increases the value of the circulating coins.
Helps keep a steady value in the case of stable coins.
Builds community trust after an ICO.
Reducing the circulating supply reduces the transactions which reduces the risk of cyber attacks.
Long term value for investors because there won’t be an over circulation devaluing the asset.
Minting creates the currency and burning keeps it in check. The two processes are key to the future of cryptocurrency.