Previously, we have talked about many other phrases such as fork in cryptocurrency trading. Here is some lesson on the token burning.
Anyone who has invested in cryptocurrency would have heard of this at least once. ‘Lock up period’ or ‘Token burning’ It reminds me of a small ad saying, “I’m going to bite and burn a token.” What does it mean, lock up and burning, which is used in tokens?
On Wednesday, the global bourse operator Binance said it has carried out burning of its own token BNB. This is the elimination of about 2.2 million BNB tokens, which is equivalent to $38 million. It may seem strange to incinerate a token, but it is actually simple.
The dictionary definition of burning is ‘erase and eliminate’. In other words, it erases a certain amount of tokens and removes them. It’s not really about getting rid of the token, it’s about sending the token to a wallet without a private key so it won’t get it back. Then, why erase and remove a healthy token? This is understood simply by considering the principle of supply and demand.
Here is the simple explanation of token burning:
Let’s take an example. Ten bags of potato chips are available at $1 per bag on the market. However, burglars stole five of them and only five bags remain. Only five people can buy what 10 people wanted to buy for $1 each. Then there was competition among those who wanted to buy the chips. They started buying them at a higher price than the retail price to get them. In the end, the value of the $1 chips will rise to $5 due to competition from those who want it.
Tokens are similar to this With 100 tokens in circulation at $1, if the token issuer incinerates some of the tokens and reduces the amount of circulation. The principle is that the token value increases due to competition among those who want to buy it.