Benefits to Investors from Burning of Crypto Tokens
Snapshot
- How is Token Burning Beneficial to Investors?
The burning of cryptocurrency refers to the process of restricting the supply of the cryptocurrency so that its value can be restored. The burning of cryptocurrency helps in tackling the issue of inflation.
The coin supply is restricted by permanently removing a small number of coins from circulation. A small percentage of the total coins available in the market is removed and is sent to a frozen wallet. These tokens once burnt can never be used or recovered. So now the biggest question that arises is, “How is token burning beneficial to investors”?
How is Token Burning Beneficial to Investors?
Token burning is a process that offers advantages to both the developer and the investor. Burning a token not only helps in getting a competitive edge in the market but also helps in stabilizing the value of the coin and resolving issues of price inflation.
The stability that is achieved by burning tokens, gives stakeholders motivation to continue holding their assets and keep the prices lower, this in return will assist the network in maintaining uptime and capacity. During the early phases, of the development of a coin, the Burning of a token, offers a sense of dependability and confidence.
After an ICO (Initial coin offering), all the unsold tokens are burnt to achieve increased transparency. Organizations that are selling undistributed tokens through exchanges can generate profit, but will also have to suffer backlash as they will be accused of operating for profit alone. When an organization only uses the funds that it has raised for business activities, it demonstrates a commitment towards the investors and also increases the value of their token.
Token burning helps in increasing the security for users, allowing them to speed up transactions safely, without facing any unintended consequences. A trust is formulated between the users and the network, as the network will be used as intended, and there will be no motive of demanding more fees other than for faster execution.
In simple terms, burning can be identified as a process used to bring balance to the economy.
It should also be noted that the burning technique is not suited or will be functional for all cryptocurrencies. This is mainly because of the different functionalities of cryptocurrencies. Where some are suited to carry out transactions, some cryptocurrencies are suited as a store of value.
Cryptocurrencies like Bitcoin and Ethereum do not utilize the burning of token processes.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.
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