Token Burning: Securing cryptocurrencies

Token burning relates to the continued elimination from the distribution of existing cryptocurrency coins. Token burning is a deliberate action taken by the makers of the coin to “burn” a certain amount of the total available tokens in existence or eliminate them from circulation.

Larger Blockchains like Bitcoin and Ethereum usually don’t use this mechanism, as burning is often done by altcoins and smaller tokens to control the number in circulation, giving investors greater incentives.

There are different methods by which projects burn tokens, which vary depending on the scope of the method. Some methods apply a one-time burn once their Initial Coin Offering is finished, to remove any unsold tokens from distribution as an incentive to members. Others favour the regular burning of coins at determined or variable periods and sizes.

For example, Binance periodically burns tokens as a section of a dedication to touching 100 million burned BNB tokens. The amount of coins changes according to the number of trades performed each span on the platform.

Why do we need to burn tokens?

The most common reason behind token burning is to boost and stimulate the value of a coin to grow. Going through the economic laws of demand and supply, reducing a commodity’s supply on the market fuels the demand for that particular project.
As such, the supply of a coin decreases in equal measure by burning a token, prompting an increase in the demand of the coin as there is a smaller amount of coins available. Consequently, the coin’s price appreciates and its value becomes stabilized.

The ultimate goal of any cryptocurrency is to gain trust from the coin holders, particularly one that is new to the market. Its price is bound to rise after the Initial Coin Offering (ICO) of new crypto. The project developers may decide to make more profits by selling excess coins to exchanges, which is unfair at the prevailing spiked prices. Moreover, it would lead to allegations that the developers are only committed to profits and their coin has no real value.
Burning the excess coins, however, shows that the developers are committed to the coin’s long-term development. As such, the funds raised by the ICO will be used for commercial operations. But most importantly, burning excess coins helps the project to be decentralized.

Conclusion

Token burning proves to be an efficient way to preserve a secure crypto-ecosystem. With time, future cryptocurrencies will certainly adopt this mechanism offering its numerous advantages, particularly in the infancy stage of a coin.

With the hope that cryptocurrency space will stand the test of time, coin burning may be the best bet to maintain a crypto’s long-term value.