What is a Burn Event, and why do we need it?
Burning tokens or coins is the process of transferring crypto assets to a wallet without an access key. No one can access the tokens without a secret key, so they become “lost” forever. There are several reasons why cryptocurrencies must be periodically “destroyed” this is done to actively incentivize and reward the investor base of the project.
Burning coins directly affects supply and demand factors, and the main goal is to cause a deflationary effect. By limiting the total number of tokens in circulation, these steps make tokens scarce and increase the value of the cryptocurrency. This raises the total value of the token, and existing investors benefit from rising asset prices.
In the real world, burning coins would mean creating a pile of banknotes and setting them on fire. Burning coins in the cryptocurrency world is the same thing, though it’s a virtual event. Each cryptocurrency network defines its own protocol for performing the burning. Still, it boils down to linking the coins in circulation with inaccessible private keys so that no one can appropriate them for themselves. In addition, the coin-burning event itself is recorded on the blockchain.
Main purpose
The primary purpose of coin flaring is to regulate the supply and thus stabilize the price. This process is similar to the demonetization of currency or stock repurchases. Similarly, the central bank raises interest rates when a country’s inflation rate rises because of an oversupply of money. A person with excess cash will then put money in the bank, thereby reducing liquidity. This example is not exactly like the burning process but accomplishes the same goal.
When developers/maintainers burn coins, the number of coins available on the market decreases, and as a result, the price of the coin increases.
The fundamental difference between fiat and cryptocurrency is that fiat currency is inflationary in nature, while cryptocurrency is deflationary. This is because the total amount of fiat money in circulation continues to increase over time (through the debt instrument and central banks printing money). But the total amount of cryptocurrency (for most currencies) in circulation has an upper limit — in the case of bitcoin, for example, the target is 21 million coins. Therefore, the value of a unit of fiat money loses value over time (due to inflation), and in the case of cryptocurrencies, when mining can no longer produce new coins, a unit of cryptocurrency will continue to accumulate value (deflation). Nevertheless, until total emission is achieved, crypto-enthusiasts believe that coin burning is an excellent way to increase the value of cryptocurrencies.
At MarsDAO, token burning, or the Burn Event, occurs through transactions in the MarsDAO Wallet bot, the MDAO Maker launchpad, and betting on the Dexsport platform.
