What is Token Burning?
Token burning refers to the process of removing some amount of existing cryptocurrency tokens from circulation.
This process is common in blockchain industry. This action is performed by the coin’s creator. There are several reasons to do this. Though the coins like Bitcoin and Ethereum are not using this practice, it is still widely used by altcoins and smaller tokens to control the number in circulation, providing greater incentives to investors.
The burning mechanism is unique to cryptocurrency, as regular fiat currencies are not usually “burned,” though the flow of available currency is otherwise regulated.
How does Token Burning work?
There are different ways the crypto projects burn tokens, and they vary depending on the purpose of the process.
Token burning can be a one-time process when all the coins subject to burning are being removed at the same time. This process is mostly used by ICO-s (Initial Token Offering) when they simply remove all unsold tokens after reaching the end of the token sale. For bigger cryptocurrencies, the periodical burning of cryptocurrencies is preferred.
Why companies burn their tokens?
Token burning is usually a deflationary mechanism. Companies use it to maintain a stable value and keep incentives for traders to hold their coins.
The most common reason for burning the tokens is to boost the value of each token by reducing existing supply.
Who benefits from token burning?
Both projects and coin holders benefit from this process.
Burning tokens helps stabilize a coin’s value and minimize the risk of potential price inflation.
Another major reason why projects burn unsold tokens after ICOs is to give investors greater transparency. A company that sells undistributed tokens on an exchange might gain an additional profit but might open itself to allegations that it exists for profit alone. On the other hand, the promise that projects will only use the funds raised for business operations shows a commitment to investors and values their tokens at a fair price.
Pointpay will also burn all unsold tokens after the end of token sale.
Follow us on Social Media for more updates.
