Token burning describes the elimination of particular existing cryptocurrency coins from circulation or distribution. The “burning” of the cryptocurrency coins involves sending the tokens to an inaccessible address or address that is not managed or controlled by any individual.
blockedon 2 smart contracts (escrow | Ethereum
The main reason for burning cryptocurrencies is to improve the value of other coins that are still in circulation. Most coins have a finite and specific total number of coins that should be in circulation. If the demand for a particular coins remains constant, the value of the coins should increase because the supply is limited. The notion is derived from the law of demand and supply. If there are fewer coins to satisfy the overall market, the currency will become more valuable and desirable. Increased demand and a limited supply are noted by a constant increase in the cryptocurrency price. However, companies should realize that token burning is not a guarantee that the price of the remaining coins will improve. Regardless of the number of coins in circulation, the value of cryptocurrency coins is determined by demand and supply, or the amount of money that investors can pay for a coin.
The main benefit of token burning is increasing the value of the remaining tokens. The lower the supply of tokens on the exchanges, the higher the value of the existing tokens. The value of tokens is highly dependent on demand and supply. Burning the tokens ensures that the company minimizes the long term demand for the remaining coins and making it attractive for investors in the long term.
All in all, token burning creates scarcity that influences market capitalization. The main objective is to improve investor value.