Get to Know About Token Burn!

Farah Diana Patcha . August 15, 2022

Photo: financialexpress.com

Techspace - Company made tokens to be sold for the crypto traders, while getting profit by the value of crypto each day. However, some of the companies have burned their tokens. This is confusing; why do they do that when they are the producer of these tokens? It’s like wasting their money and effort for a loss.

The action of a company burning their own tokens is called token burn. Here is the information you’ll need to understand its reasons for doing token burn.

Token Burn Definition

Based on the name, token burn is an action to permanently remove a significant amount of tokens from the market. Token burn works by a burn address that entirely removes the tokens and cannot be recovered. Thus, once the tokens are sent to the burn address, they will be gone forever from the circulation.

Burn address or eater address as a token burn tool is a cryptocurrency wallet. However, the difference between a burn address with the usual cryptocurrency wallet is that the burn address cannot be accessed by anyone, because it doesn’t have a private key, a code to unlock cryptocurrency wallets.

The tokens that have been transferred to the burn address cannot be traded, ending up decreasing the amount of specific tokens that exist within the market. As we all know, supply and demand relationships are also important in cryptocurrency trading. The lower its amount, the higher its price. If the number of tokens’ available on the market are lower than the traders who want to buy it, the price of tokens will rise up because it has a high demand with low stocks. The tokens’ price could also fall if the amount of it doesn’t meet up the demand for the tokens. 

In conclusion, token burn is needed to balance the price of tokens in the market, so it will give profits to all of token holders and bring back the investment values. 

Read also: Fast and Easy, Here's How to Convert Bitcoin to Fiat Currency

Token Burn Examples

Some companies have burned their tokens in a way to stabilize their tokens. Sometimes, they also burn the token automatically, even though there are no specific reasons that affect the token’s price. 

1. Ethereum

Back in August 2021, Ethereum burned their 2.5 ETH, equivalent to $2.9 million within the EIP-1559 project. This action is actually the method made by the company to change their tokens from its proof-of-work network into a proof-of-stake. The tokens that were burned are gathered from the fees associated with verifying transactions on the network. The token burn itself aimed to reduce the gas fees in the Ethereum transactions. 

2. Shiba Inu

In April 2022, Shiba Inu developers introduced Shiba Inu (SHIB) tokens burning portal. If traders decide to burn their current SHIB tokens, they will get burntSHIB tokens as a return, which are given out as a reward in the ERC-20 token RYOSHI. 

3. Bitcoin 

Bitcoin is one of the blockchain that adopt a proof-of-burn system to verify transactions, giving the traders rewards if they decide to burn the tokens. It basically works like the usual token burner, traders should send their tokens to the burn address to get it vanished. To burn the tokens, Bitcoin holders should receive permission from the protocol to write blocks by sending the accepted tokens.

Read also: CeFi vs DeFi: Exploring the Advantages and Disadvantages


NFT Burn Examples

As a part of digital assets, NFT also could be burned, if the projects also provided the burn mechanics. 

1. Burn.art

Created by artist Pak, Burn.art is a project based on the cryptocurrency ASH, a cryptocurrency made from the burning NFTs. To enter the marketplace, the traders need to burn their NFT in exchange for ASH. This would make the value of NFTs in the same collection rise, while the users can get their access into the marketplace. 

2. WAGDIE

This company is popular with its morose pixelated avatars collection that plays a popular phrase, “we’re all going to make it.” WAGDIE has bought a Mutant Ape NFT worth a thousand dollars, and then burned it as a tribute to their project. This is an unusual way the company takes to promote its project. 


(FDP)

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