An effective way to coin value retention
Our world today measures the value of an asset according to its scarcity, the difficulty and cost of obtaining such asset, and the utility it espouses. Gold, silver, oil, gas, and real estate are prime examples of highly valued physical assets whose market prices are generally on the uptrend. That is why the value of currencies are pegged on select assets of these kinds to keep a currency from declining. The only thing that makes it inflationary is the amount of a particular currency being printed, minted, or put out into the market for circulation.
Scarcity, too, is the name of the game in cryptocurrencies. By controlling the supply of a cryptocurrency, it is at least assured that its value will not collapse. The number of tokens or coins produced depends on developers’ proposal in the publication of their whitepaper. After the initial coin offering or ICO, Coin Burning is employed to eliminate unsold coins and permanently reduce the number of tokens in the market. It is a measure to sustain the said token’s life by arresting the decline of its value through coin burning.
Coin Burning What?
Why Coin Burning?
There are a number of reasons why almost all active cryptocurrencies employ coin burning.
- When the number of coins or tokens are reduced, its value goes up.
- There are cryptocurrencies that have their basis on a Proof-of-Burn principle to generate consensus. Developers, miners, investors, traders, and users concede to destroy a number of circulating coins irrevocably.
- The economic concept of supply and demand dictates how much a coin is valued. The production limit contributes to a token’s deflationary nature. Contrary to fiat inflation, where central banks can print with reckless abandon, lost digital coins and their permanent number in circulation historically have driven price increases and market presence stability.
- Coin burning protects cryptocurrencies from spam transactions and DDOS (Distributed Denial of Service) attacks. Tokens are minted every time a transaction makes its way into the blockchain as rewards to miners. Automated token destruction occurs in a small percentage for every transaction to prevent a number of tokens from bloating.
- When control mechanisms are in place, scarcity sets in as more and more tokens are taken off the market.
Token destruction models exist in a cryptocurrency blockchain’s core protocol, integrated to form part of a coin or token’s heart and soul.
PoB algorithms. Proof-of-Burn builds consensus, which a number of cryptocurrencies rely on. Miners destroy some of their coin rewards revealed via algorithms, thereby eliminating costly computing resources of proof-of-work. Some PoB models include the destruction of native coins for mining rights, the destruction of bitcoins to create new native coins, and the burning and mining balance.
Market conditions. When some projects fail to reach intended figures, excess and unsold coins are essential to retaining coin value. They are not kept but burned permanently for integrity. Profits can be used to buy back tokens, which are then sent to burn addresses without keys without the hope of ever being retrieved. In other words, they are burned. Coin value then increases as this approach is made public and retraceable to such one-way addresses for scrutiny.