Many people have been curious about cryptocurrency burns and buybacks. Recently, these mechanisms have been gaining more attention in projects, so I thought I’d organize some thoughts on the topic.

First, what exactly is a cryptocurrency burn? Simply put, it involves sending tokens to an address that cannot be used (called a burn address), effectively removing those tokens from circulation forever. When supply decreases, scarcity increases, which can theoretically lead to a price increase. However, it’s important to note that a price rise is not guaranteed.

On the other hand, buybacks involve a project using its own funds to purchase tokens from the market. While similar to burns, the tokens bought back are stored in the company’s wallet and are not necessarily destroyed. This is a key difference from burns.

Between 2017 and 2018, several well-known projects started adopting this strategy. Large exchanges also run programs that use a portion of their quarterly revenue to buy and burn tokens. In October 2021, there was a case where a project burned over 1.3 million tokens, removing them from the market.

Why is cryptocurrency burn so popular? Many emerging projects start with a large number of tokens at low prices, so developers want to artificially create scarcity. For example, starting with 1 trillion tokens and then burning several billion to aim for future price increases.

From a technical perspective, there’s also a consensus mechanism called Proof of Burn (PoB). Miners burn tokens to earn mining rights. This was created to avoid the energy waste associated with Proof of Work (PoW), but it also raises concerns about centralization of power among large miners.

However, caution is needed. Even though it’s called a burn, it doesn’t guarantee a price increase. In fact, some fraudulent projects use burning as a trick to deceive investors. There are cases where developers send tokens to their own wallets and claim they’ve burned them, or use burns to hide large holders (whales).

In the long term, buybacks and burns can be a double-edged sword for token holders. Reducing supply can stabilize prices, but if a currency becomes too deflationary, liquidity may decrease, and the entire system could become rigid. Investors should understand the true motivation behind these actions—whether it’s just price manipulation or a sustainable strategy—and make informed decisions.