What is token burning?
Token burning refers to the process in which a certain amount of cryptocurrency is intentionally removed from circulation, reducing the total supply of available tokens.
Imagine a popular restaurant that takes some tables out of the dining area to make it feel more valuable and exclusive with a limited number of tables. Similarly, cryptocurrency token burning reduces the total supply of tokens, which can potentially increase the value of those that remain.
To burn tokens, a project sends them to a unique wallet address that can only receive tokens but never send them out. This makes those tokens permanently inaccessible — like locking them in a random and resistant-to-hacking wallet with an unknown private key.
Typically, the project or community decides on the address to ensure it is random, resistant to hacking and entirely inaccessible. Since no one can retrieve or spend these tokens, they are considered permanently “burned.”
Token burning is often done by cryptocurrency projects to control supply and create scarcity, attracting investors and stabilizing the market. While some traditional companies achieve a similar effect by buying back their shares to reduce the number in circulation, token burning is unique to the cryptocurrency world and reflects a project’s commitment to long-term goals.
By permanently removing a portion of tokens from circulation, burning can make each token more valuable, similar to how limited edition items get appeal when their availability decreases. This scarcity can attract investors while rewarding existing holders with potential value appreciation, ultimately reflecting the project’s commitment to long-term goals.
Token burning is seen as a strategic move to increase a token’s value by shifting the supply-and-demand balance. While not all tokens employ this method, it is common among smaller or newly emerging token projects in an attempt to stabilize their market and gain investors’ trust.
How token burning works
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