As the total number of people who are starting to devote themselves to Cryptocurrency trading continuously increases, financial geniuses have found another way to keep it flowing in a fair manner . The process which we are trying to tell you is called coin burning. What is this procedure all about?
Well, coin burning is the investors and developers manner of taking a digital currency off the circulation to prevent inflation thereby making the number of circulating cryptocurrencies lesser. Why do they have to do this? As we all know, the supply of cash or bills are determined via the availability of reserve resources that back up the value of certain local currencies.
This then means that despite being able to print infinite bills, it is impossible to do that due to certain regulating factors such as gold reserves or the import/export ability of a particular country. The same case also happens to cryptos, once a digital currency’s behavior is expected to cause inflation, experts would perform coin burning to prevent problems.
The coin burning procedure
This process is not done by any trader, there are legit individuals such as miners and developers who are tasked to acquire these coins then send it to specialized addresses that have unobtainable private keys.This process is like locking a token or cryptocurrency in order to eliminate its circulation in the market.
In some companies, the process of burning is done by purchasing all the existing cryptos in the market to make sure that it becomes out of circulation. By studying the explained process, we could see that coin burning somewhat got its inspiration from stock buying back concept. This concept is usually performed by stock companies to back up the value of stocks that are actively traded in the market. In addition, this is also done with an expectation that the earnings per share would increase after doing so.
Is coin burning therefore advantageous to cryptocurrency trading?
Aside from the fact that coin burning will help make certain tokens rarer and more valuable, the procedure is also known to ensure the stability of digital currencies. But because of the unpredictability of their behavior in the market, being involved with tokens may pose risks. One of which is losing the benefit of a currency to be used for payment purposes because it will no longer be honored by stores.
Conclusion:
Before finally ending our discussion, we just would like to remind you that cryptocurrency trading is a venture for risk takers. Knowing the fact that your tokens may one day lose its value and get burned should somehow inspire you to have alternative procedures and plans that you have to perform if worse comes to worst.
On a much lighter side, the possibility of making profit and enjoying the conveniences brought by cryptocurrencies are not eliminated just because of its drawbacks. If you are really determined to start your trading adventure via cryptocurrencies, then no one can stop you from doing so. You just have to make sure that you meet the right people and read the right materials so everything that you have dreamt of will fall into the right place.
