why do crypto coins get burned: When I started in the crypto industry, I always read about coin burning. I imagined throwing a physical currency into the fire and allowing it to burn to ashes. It made no sense to me. How much more burning a digital coin? If you are a total crypto noob, you might also be wondering why do crypto coins get burned?
Welcome to Kafy crypto, your number-one crypto news, and Web marketing agency. In this post, we will answer the question “why do crypto coins get burned?”
Why do Crypto coins get burned?
Crypto coins get burned to control supply and price stabilization. Developers burn crypto coins occasionally to reward investors and raise the coin’s value.
The supply of coins decreases as they get burned. This promotes scarcity which spikes up the coin demand that causes a price increase.
There are also other reasons why crypto coins get burned. Below are some of the reasons:
- Crypto coins get burned to protect against spam. It is a natural way to safeguard against Distributed Denial of Service attacks. It prevents spam transactions from clogging the network.
- Crypto coins are burnt to encourage long-time commitment from developers. This, in turn, enables price stability.
- Crypto assets are based on supply and demand. Hence crypto coins get burned to increase coin price. When the supply is low, the demand becomes high. This may result in a price increase.
- Investors can only invest in what is profitable to them. Because of this, developers burn Crypto coins to preserve wealth for all participants.
Does “Token burn” mean the value of the coin will increase?
The answer is yes. Token burn means the value of the coin will increase. However, it depends on the supply and demand of the coin. If the demand for the coin in circulation is low or if nobody is investing in the coin. The coin value remains the same no matter how much the coin gets burned. If the demand is high and the supply is scarce due to coin burn, the coin’s value will increase.
The goal of token burn is to remove a certain quantity of tokens from circulation. This is done by transferring the required token to a burner address. The token transferred to the burner address will never be retrieved even if it is needed. This burner address is also known as the eater address.
Any token sent to the “eater address” has been completely removed from the total supply. No one can reverse or withdraw it nor can it be recovered. This is because there is no private key corresponding to the address that received the token. Hence, the token doesn’t exist anymore.
When a token is burned, its value increases because of supply scarcity.
An example of token burn can be seen from Binance. Binance burns its token quarterly. The company has burned approximately $60 million in BNB tokens.
Ripple(XRP) also burns its token but uses a different means. They do this by reducing the number of transactions allowed on their network. Another way they do this is to use the fees as “gas” to make the transaction happen faster than usual. With each transaction, the supply of XRP circulating in the market is reduced.
Also Read: Does Crypto Run 24/7 – Is Cryptocurrency trading 24/7
Why are people burning Crypto coins?
People have many reasons why they burn crypto coins. One of the main reasons is to reduce the total supply. They do this because by reducing the supply, the value of the coin may increase. When supply falls, the coin becomes scarce. As long as the demand remains steady or increases, the coin will become more valuable.
Though not all Cryptocurrency burns coin. Cryptocurrencies, where mining takes place, are typically those that do not burn. When a crypto coin is burned, it causes a deflationary event in which the token value rises rather than decreases over time.
This can be likened to companies buying back their stock. Companies buy their stock to increase the stock’s value for their shareholders. Crypto developers also do the same. They burn crypto coins to increase the value of the project’s cryptocurrency for those who hold it.
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What happens when Crypto gets burned?
When crypto gets burned, It is permanently destroyed and it ceases to exist. This is because the required crypto is directed to a private key that is not usable. When this happens, the crypto token becomes worthless.
Transferring crypto to a private key means taking the crypto out of circulation. This in effect reduces the total supply of the token and increases the token’s demand.
Check out: Is Crypto Staking Worth it?
Why do Crypto coins get burned?-Final Thoughts
Crypto coins get burned to reduce supply and increase price stability. When crypto coins get burned, the total supply reduces. The supply scarcity creates a high demand causing an increase in the value of the coin.
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