What is Token Burning?

2021/06/15 02:44:55

Token burning is a concept that refers to removing tokens from circulation and provides a deflationary feature, consequently reducing the total supply of circulating coins. Cryptocurrency miners and developers engage in token burning because the crypto sector can be a very difficult market, especially when it comes to controlling the flow of tokens after mining. On top of that, it’s considered a good idea to have a deflationary component included in a token, as investors passively increase the value of their holdings by holding a bigger proportion of the total supply each time a token burn occurs.

How does Token Burning Work?

To remove coins or tokens from circulation, cryptocurrency miners and developers get the tokens and transfer them to defined addresses, which have private keys that provide security. In the absence of a private key, one would not obtain the tokens to facilitate their transactions. As such, the tokens would be rendered useless and generally downgraded to a space exterior to the circulating supply.

The main inspiration behind token burning is to reduce the number of tokens in supply, thereby making for an outcome where tokens are rare. When tokens are rare, they hold more value compared to when tokens are in plentiful supply. Too many tokens in supply reduce their value.

Benefits of Token Burning

While there are many benefits of token burning, the most outstanding one is that it increases the coin's value. When the available amount of coins are low, their price tends to increase because the demand is high compared to supply. The crypto market is very competitive, with investors progressively striving to grow and diversify their investment portfolios.

When the tokens are rare and deflationary, investors will be more inclined to buy them regardless of their prices.

Another advantage of token burning is that it reduces the chances of spam attacks, therefore creating room for a wider bandwidth where many safe transactions can take place over the network. When there are many token transactions taking place in the market at any given time, the chances of a spam attack also go up. This is because it gets cheaper to perform this attack if the coins used by the network are cheap. Therefore, the amount of tokens in the circulating supply has to be controlled to limit the probability of unwanted attacks like junk communications that manifest when using the internet.

KuCoin KCS Burn

KuCoin ensures the supply of KCS is kept within a certain threshold through a buyback or burn each month.

KuCoin token burning also slows down the rate of inflation. With many tokens in supply, the rate of coin circulation goes exponentially high. To control inflation rates, KuCoin actively burns tokens to keep inflation rates in check. When tokens have a deflationary component, traders are more drawn to trading so that the coins can be bought before it gets overvalued in price.

The KuCoin team completed the 17th KCS burn on 17th April where 348,241 KCS were burned, amounting to 10% of the total April income for KuCoin.