Dear Steemians,
In this crypto world, the "Token or Coin Burning" is a very trendy phrase that you would have heard many times. What it is? Why it is needed? Let’s start learning it in detail.
As we all are aware about Proof of Work(PoW) and Proof of Stake(PoS). If you are still not, please go through with my previous article by simply click on the below link https://steemit.com/crypto/@text2crypto/important-for-fellow-investors-proof-of-stake-pos-evolution
Alternatively, the token burning is Proof of Burn (PoB) which is a readily alternative for PoW and PoS and actually performed for the specific reasons. In this process, the miners or participants have to show the proof of the burnt tokens. But where do these tokens go after burning? That is still a very complicated question for some but actually, it is so simple. The tokens are sent to a bogus address which does not contain any private key. Eventually, these tokens become unspendable.
There can be various reasons for performing this task. But here i would like to mention only the major one.
• For benefiting the investors
To increase the value of remaining tokens or coins, the burning process is performed as there are finite numbers of tokens or coins are generated in total. For Example, if XYZ coin is 18 Million in supply and 20 Million in total and there are only 2 Million remaining coins. Just imagine, if the company decides to burn the 1 Million tokens then surely the demand of that tokens would increase and ultimately the price would go up. As a result, the investors would get the benefit from it. That’s why these days the companies perform burning token tasks from time to time to lure the investors so that more and more investors come and invest in their project. Binance Token (BNB) is the perfect example of this.
• For destroying unsold tokens after ICOs or Token Sale
Another reason for burning tokens is when the company finishes its ICOs or token sale and fails to sell all token then the company has to destroy all remaining tokens. These unsold tokens are sent to an unspendable address.
• For generating new tokens/coins
Tokens or coins are burnt for generating new ones. Blockchain needs an efficient and secure consensus algorithm. Proof of burn can seem expensive but in the real sense, it consumes no resources other than the underlying asset that is burnt. The ultimate source of scarcity remains the fuel that is mined from proof of work. It encourages the fair distribution of cryptocurrency in a decentralized manner.
So friends, I hope you would find this information useful as I have tried my best to present this as simple as possible so that all people including those who are from the non-technical background can easily understand this.
If you have information about the coins or token to be burnt in next 2-3 months then please share in the comments section.
Have a Good Day!
Warm Regards
Danny Crypto
