Is money burning an economic savior? Learn about the YUP.
Milan Tymel is the CCO (Chief crypto officer) at Crowdholding, You can follow Milan’s blog here where he will be writing articles about cryptocurrency, economics and Crowdholding. This is his first article about token burning.
The YUP token and Bitcoin both belong to the new wave of currencies that are inherently deflationary. Or to say it differently, the total money supply shrinks and in time the value of each individual YUP, grows.
Yet the world we live in today is built on inflationary currencies, everything is created with the simple principle: you have to spend your money otherwise you will always lose thanks to inflation.
You want to keep your money, so you deposit it in your saving account where you get 2% interest. It sounds nice, until you find out that actual inflation is currently at 2.2%! What it means is that you are actually losing money because the central bank (FED), has exceeded expectations finally, and is now keeping up with the level of inflation.
Deflation in general is a big bogeyman that haunts most economists around the world since modern real-world examples of deflation have happened in times of crisis. Yet there is no proven example of an inherently deflationary currency, in other words, a currency where the total supply is fixed and can be only lowered. However, Bitcoin has changed this. Now we finally have an example of currencies that are deflationary, which in essence means just holding it doesn’t allow it to lose value. That’s why we have decided the YUPIE token will be a deflationary currency from day one.
And now we can even deliberately decrease the supply of the currency to raise the value so every invested party in the cryptocurrency world will benefit from it. This is known as token burning.
In general, money burning implies an act of destroying money with the aim of reducing its amount in circulation, thereby lowering its supply. In a Macroeconomy, it’s an approach used in monetary policy to cause deflation by shrinking the amount of cash in circulation.
Benefits of token burning
When the tokens are burned, everyone who holds the tokens will profit. As soon as part of the tokens are destroyed, the proportionate value increases of the people holding the token. This also motivates the investors to hold the position and not to sell immediately. When the unsold tokens are automatically burned after a successful ICO, a price of the currency will not be diluted by undercutting the price. What this means is that holders of a particular currency will become wealthier, instead of losing money because of inflation.
Yet money burning, or so-called deflation has side effects. Circulation of the currency can slow down and theoretically even stop, because it is more effective to hold on, then to spend.
This results in a economy in crisis, due to everyone being worried about losing their jobs and homes. So governments step in and will do the only thing they know: spend everyone’s money to save a few lucky guys who suffered from the side effects. Or more commonly known as bailouts, such as Germany during the financial crisis. The other solution is to save the market through development, fueled by innovation. Blockchain technology finally enables us to create a decentralized open innovation platform just like our Crowdholding ecosystem, where anyone can help innovate businesses and save jobs, enterprises, markets, economies or even the whole world from collapsing. Yup!
Benefits for Crowdholders
The Crowdholding ecosystem is designed in such a way to accomplish several things at once. You can earn cryptocurrency anywhere in the world just by spending your time and actively co-creating with the businesses you love.
As the time goes by, people who joined the community and purchased the YUP tokens earlier will be able to sell at a higher price to the businesses. Thus, the token holders who bought YUP during the pre-ICO or Crowdsale will be able to resell to the growing network of businesses on the Crowdholding platform, that will use the YUP as a payment to the Crowdholders. This in turn means, that Crowdholding ecosystem incorporates inherent demand, that will drive the price of YUP up.
