Crypto Burning: A Deeper Look into Its Role in the Cryptocurrency World
Many Web3 projects want their tokens’ value to go up, and token burning is one way they can help make that happen for their investors.
A token’s price correlates with real-world utility, so if users use a token for something other than just speculative purposes, it might be in their interest to buy more.
Token burning plays a role in determining a token’s value by reducing its total supply and increasing demand. So, what does crypto burn mean? And whether it has positive effects on a token’s price. Learn more about it below.
What Does Crypto Burn Mean?
In the world of cryptocurrency, burning sends a cryptocurrency transaction to the blockchain and destroys it. Burning a coin means removing it from circulation so it cannot be used again.
Burning a coin is not just a way to destroy currency but also to reduce supply and increase demand for the remaining coins.
This leads to an increase in price because fewer coins are available than before, but also because people will be more likely to buy them if they know no more will ever be created or mined by anyone else.
Why Burn Crypto?
After learning what burning crypto is, you might wonder who wants to throw away their tokens. Moreover, why do many blockchain projects like Swerri create burning mechanisms?
Many people burn crypto for different reasons. But one common reason is related to the law of supply and demand. Burning crypto directly impacts the number of tokens available for trading, which will, in turn, affect the price of a token.
The more tokens are burned, the smaller the circulating supply becomes. This means that there are fewer tokens in circulation, which causes deflation and can make it difficult for some projects to be profitable.
Some projects use burning techniques to make their tokens deflationary and help maintain their value over time. When developers announce a token burn, they often see a price jump due to increased interest from investors who want to buy those tokens before they can no longer be purchased or traded on exchanges.
Burning is an effective way for crypto projects to manage their assets — and it can also help them achieve other goals, such as increasing liquidity and decreasing volatility by reducing supply over time.
Where are Burnt Tokens Stored?
Burned tokens are stored in a burn address. This special address is created by each blockchain platform and can be accessed only through the official wallet for that platform.
Burning tokens is an alternative to selling them in exchange for fiat currency, which means you can use your no longer-needed tokens to support projects you are interested in.
Bottom Line
Most people perceive crypto burns as a gimmick or publicity stunt. However, it is a technique that plays a central role in a blockchain’s monetary policy. This is where burning mechanisms play a huge role in helping people better analyze the supply versus demand of a crypto asset.
At Swerri, we aim to place a share of our crypto in the hands of every Kenyan citizen and abroad.
