LATOKEN Blog

What is token burning, and why are developers destroying cryptocurrency?

LATOKEN explains why some digital coins are being phased out and how it affects quotes.

In the cryptocurrency sector, there is such a thing as token burning. The creators of digital coins destroy some of the emissions to limit the supply, thereby increasing the asset’s value. All coin burning operations are recorded on the blockchain as a general transaction. That’s how anyone can verify that the coins have indeed been permanently withdrawn from circulation.

When creating a new cryptocurrency, developers calculate a mathematical model that determines the value of an asset. Developers have to destroy some of the tokens if the digital coin does not achieve the model’s set goals. Holders of this cryptocurrency do not have to worry that their tokens will be destroyed, as the developers burn digital coins that only belong to them.

An example is a Stellar cryptocurrency, which with a capitalization of $14,4 billion, is in 13th place in the ranking of the most prominent digital coins. The last time a developer burned Stellar tokens was in 2019. Then 55 billion of the 105 billion issued coins were destroyed. After that, the cryptocurrency has risen in price by 20%. Stellar is currently trading at $0,63.

For example, there is no burning in the bitcoin network, but the Proof-of-Work (PoW) consensus helps prevent an oversupply of new coins from circulating. The periodic reduction in the reward to miners for the found block (for the completed computational task) is designed to keep the target’s inflation rate.

Besides, do not forget that many other cryptocurrencies have a limit for the issue of coins. For example, more than 21 million Bitcoins will never exist.