From time to time, you hear about burning tokens in the cryptocurrency markets. Burning tokens became an important agenda, especially in the mutual statements between the Terra Luna foundation and Binance CEO. While Binance CEO recommends burning tokens for the salvation of Terra Luna, the Terra Luna Foundation does not seem very willing to do so.
I decided to examine the topic of burning tokens, which is on the agenda.
Let's Burn The Tokens...
Teams that produce projects with blockchain technology sell tokens to obtain financing. These tokens must be registered with a certain tokenomics. In this document, how the burning process will be done should be written in detail. What are the important reasons for burning tokens; Increasing the price of cryptocurrency, Reducing inflation pressure, Getting rid of faulty tokens, Removing unsold tokens in Pre-Sale, …
What is token burn… ?
It is the removal of a certain amount of cryptocurrencies from circulation. Cryptocurrencies are not destroyed, but transferred to wallets irreversibly. Since emission regulation tends to increase the value of the asset, the procedure has a positive impact on the economic performance of the cryptocurrency.
When are cryptocurrencies burned… ?
To increase the price; The demand for the less circulating asset increases. The tokens left after being burned create a deficit, increase their value and attract the attention of buyers. This may increase the price. This may not work for every project. There are some projects that are meaningless if they are not adopted by the investor.
To reduce the inflation pressure on tokens; Apart from increasing their value, it also helps keep them at a comfortable price level in the context of continuous mining. If the inflation phenomenon of new cryptocurrencies is not regulated, their prices will gradually move to zero.
Promises made during the Pre-Sale; Not all tokens may be sold in the pre-sale of some projects. Often the project team states that unsold tokens will be burned before the pre-sale. This is my burn; It shows the seriousness of the project and the importance it attaches to the investors who buy it from the pre-sale.
To get rid of faulty tokens; When a coin does not come out with the desired features due to a coding error on the blockchain, the fastest way is to burn it.
What methods are used to Burn tokens … ?
Sending to Private Wallet; Cryptocurrencies to be removed from circulation are sent to a wallet whose private key is destroyed and not created. Thus, the burning process is completed.
Transaction Fees; It is used in networks where transaction fees go one way to a private wallet.
Hard Fork; Large-scale blockchain updates move to a new blockchain with major changes to the code. If wallets on the old network are not allowed to update on the new blockchain, the tokens will be burned because they become unusable.
Well, there is no way to return the burned tokens … ?
When tokens are burned, assets are also sent to a private wallet, but the wallet's private key is destroyed. Therefore, the only way to bring the burned cryptocurrency back to life is to perform a 51% attack on the entire blockchain, which so far has only been possible in theory. Theory???
Few Examples of Token Burning;
Binance burns a certain portion of coins every three months until fifty percent of the total supply of 200,000,000 BNB is destroyed.
Ripple, on the other hand, performs token burning transactions over commission fees. When making a transaction with XRP, if a fee is paid for the transfer to take place as soon as possible, this amount is burned instead of being transferred to the center.
Token burning takes place for bugfixing. Tether accidentally created $5 billion coins. All accidentally generated coins were burned so that USDT, which is normally equal to 1 USD, regains a 1:1 ratio.
Some projects burn coins to avoid unwanted transactions and create a layer of security. For example,** Ripple** charges and burns every transaction to protect the system against overload and DDoS attacks.
My Last Words; Before the launch of the cryptocurrency to the market, it is necessary to plan what to do against price development and possible risks. In line with this planning, developers often consider burning the cryptocurrency. Token burning is an organic way to ensure the economic well-being of cryptocurrency. Part of the asset is withdrawn from circulation and can no longer be returned. The reasons for burning the token are to prevent inflation, increase the value of the token, get rid of bugs and more... Burning tokens alone are not enough to sustain the project. However, a competent periodic emission regulation helps companies take better care of crypto projects.
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