Can Cryptocurrency 'Burning' Manage Inflation?
It has been a question that can burning cryptocurrency to manage inflation. There are a lot of reasons behind it. So read on to get the full idea.
More On Cryptocurrency Burning
It has been noted that in the past year and a half, digital currencies have nearly come to prominence in both the daily news as well as investor attention as still there are many prominent hold outs, but more and more investors are buying into the importance of digital currencies as well as blockchain technology. Thereby as a result in just 12months the aggregate value of all cryptocurrencies skyrocketed by more than 3000% like the fact is that some investors managed to get very wealthy quickly of the trendy new investment area that has only fueled further interest in the space. It is here that even in the short time in which digital currencies have grabbed the attention there have nonetheless been trends that have come and gone. Thereafter Bitcoin was one of the first major trends in the cryptocurrency space, shortly after that the privacy coins like Dash and Monero seemed to be all the rage as it seems that another procedure has become one of the trendiest parts of the digital currency world: coin burning.
What Is The Coin Burning?
The fact is that the term coin burning conjures up imagery of an investor taking a match to tangible currency as of course, the digital currencies exist only in a virtual form which is not physically possible and nonetheless, the idea is one that holds with Coin burning as the process by which digital currency miners and developers can remove tokens or coins for the circulation and thereby slowing down these inflation rates or reducing those of total circulating supply of coins according to The Motley Fool.
The question is how is this accomplished? It’s in the digital currency world, where it is difficult if not impossible to control the flow of tokens once they have been mined. Thereafter to remove tokens from circulation miners and developers acquire those tokens and then send them to unobtainable private keys without access to a private key where no one can access these tokens to use them for transactions. Hereafter the coins become unstable and relegated to space outside of the circulating supply.
The Background Of Coin Burning
As observed cryptocurrencies are not the first to discover coin burning as a concept as the process is highly similar to the idea of a publicly-traded company buying back stock as companies of this type use cash on hand to buy back shares of common stock thereby reducing the total outstanding shares. Therefore this process helps reinforce the value of the shares that remain in circulation and can also help to improve earnings per share as the fewer outstanding shares, the ratio of net income to shares becomes higher.
It is here that coin burning hopes to accomplish a similar goal whereby reducing the number of tokens in supply as developers and miners hope to make the token that remains in circulation rarer and therefore more valuable.
What Are The Practical Applications Of Coin Burning
According to reports there have been at least two cryptocurrencies that have already attempted coin burning where Bitcoin cash has gained considerably in value heading into the spring and the cryptocurrency mining firm Antpool that announced it has sent almost the 12% of the Bitcoin cash coins as it receives in the form of block rewards for those validating transactions to the unobtainable addresses. While considering that Antpool validates somewhere close to 10% of Bitcoin cash transactions, it is not a small number of tokens. Thereafter Antpool is thus slowing down the inflation rate for BCH, as this may be contributing to the massive growth Bitcoin cash has experienced.
Even before Bitcoin cash got in on coin burning, though, Binance Coin explored this strategy as well where BNB is the official token of the Binance digital currency exchange as also BNB is thereby used to incentivize those users allowing them to pay for the transaction fees in a staggered manner according to reports that more than 1.8 million BNB tokens were burned in the first few weeks. While the process was repeated, there was another $ 30 million or so of BNB burned at the time and so far it is yet to see the same massive gains that Bitcoin cash experienced as it has nonetheless been a top performer among digital currencies.
There are of course massive risks associated with coin burning too as first, the burning coin is no guarantee that that the remaining coins in circulation will gain in value and it does not necessarily even reduce the total number of tokens outstanding as the supply of tokens in circulation seems to fluctuate considerably.
It is to be noted that a Bitcoin is an example as to why coin burning may not work with Bitcoin capped at 21million tokens as some analysts believe that this cap helps to contribute to the value of BTC and this is still that Bitcoin has also created new tokens in many instances thanks to hard forks where this is how Bitcoin Cash, Bitcoin gold and other spinoffs came to be. In this context if Bitcoin were to fork again in the future, even more tokens would be generated with the idea that Bitcoin is scarce as this is somewhat artificial.