What is crypto burning and what is the point?

What is crypto burning and what is the point? 1

Last Updated on 40 mins by cryptoevent

What is crypto burning and what is the point? 2

There are some nuanced characteristics in the cryptocurrency and blockchain industry that offer a different approach to money and investments than traditional cash. One of them is the fact that users own their funds – and really own them. Unlike traditional fiat reserve currency – where the bank owns the money and has overall control over it – with cryptocurrency you have complete control over your wealth and what you do with it.

This gives a user the power to destroy their tokens. It’s not common, but crypto token burning has some utility in the crypto ecosystem.

What is crypto token burning?

Burning a cryptocurrency token means permanently destroying it. This can be done by anyone who wishes to destroy the funds they hold by sending the tokens to what is known as a burn address. This address is frozen and blocked, meaning coins cannot be recovered once sent there.

A burn address does not have private keys to access the funds, meaning no entity can get hold of the tokens once they have been sent to the wallet.

So token burning basically means storing money in a safe and locking it, but the safe has no key to get back in.

What is the point of burning crypto tokens?

The main purpose behind crypto token burning has to do with supply and demand. The higher the demand and the lower the supply, the higher the value of an asset. When there is too much supply and too little demand, an asset’s value falls. This fundamental law of economics plays out in cryptocurrency and we can see how Bitcoins The limited supply (only 21 million BTC can be minted) affects how investors perceive its value.

Increasing the token value is one reason why token burning is progressing, another is to maintain the stability of a token’s price, and some cases of token burning are part of the creative process. This is most common in NFT projects and collections.

Reasons people burn crypto tokens

Stabilize the value of a project

Stablecoins have become a crucial component of the cryptocurrency and DeFi ecosystem. They offer a holy grail in between, offering the benefits of crypto and the stability of fiat or traditional currencies. Regulating the supply of crypto that is in a stablecoin project helps regulate the stability of the value. This means supply keeps up with value to ensure it is constant.

Increase the value of a project

The idea that supply affects value is not new, especially in finance. Public companies actively participate in corporate buybacks, in which the company buys some of its own stock and shares from the market to increase the value of the supply that is still available. So you can think of token burning as the same thing as a buyback, but with crypto.

NFT burns

When Banksy shredded “Love is in the Bin” after it was sold at Sotheby’s auction, it increased the value of the piece even though it was destroyed.

Some NFT artists take a similar creative approach to Banksy, allowing collectors to destroy their artwork. The reason for this is to add a scarcity layer to the collection and make the artworks more interesting.

The post What is crypto burning and what is the point? appeared first on Coin Insider.

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