Burning tokens in cryptocurrency world means sending some of the tokens of that cryptocurrency to a certain address which can’t be spent ever again. Everyone can see the transactions made to this particular address, and because that address doesn’t have a private key, it’s impossible to extract the mentioned tokens and there won’t be an outgoing transaction from that address.
Burning tokens is usually done for one of the reasons below:
– Decreasing the number of tokens in circulation and therefore increasing the token’s value.
– Removing the remaining tokens after the ICO
When a token is burnt, it will become impossible to extract that token again and this raises the value of the remaining tokens. This model will give everyone a fair and equal chance.
The goal of this model is to decrease distribution for the benefit of the owners of similar tokens. This method is for rewarding investors by creating a decline in distribution which leads to increasing demand and this rise in demands will result in the rise of token’s value. Interesting to know, “Binance” exchange uses this method on (BNB) tokens every three months.
Burning the remaining tokens after the end of ICO
Another method is to remove all remaining tokens after the end of ICO. This method is executed if all tokens or the tokens dedicated to sale haven’t been sold. usually after ICO or token sales, the price of tokens will increase and if all tokens are not sold out, a free and unfair amount of assets will remain in the hands of the company and the company can receive an unfair amount of profit by selling those tokens in the free market. TO prevent such a scenario, the remaining tokens will be sent to a certain address where they can’t be extracted again. To have more profit, only a few blockchain companies use this method which will result in increasing distribution and the decline of that token’s value.