Coin Burn – The Motley Fool

Last year, the cryptocurrency market simply could not be stopped. In the space of only 12 months, the aggregate value of all virtual currencies rose by just $ 600 billion, which is equivalent to over 3.300% in percentage terms. It has been an extraordinary year in every merit of the word.

Since the virtual currency market has exploded higher and higher in the middle of the scene, we have also witnessed a number of cycles of trends at the forefront. In the second half of 2017, everything that was not called bitcoin was all the rage, as investors focused their efforts on finding the next bitcoin.

Not long after, the privacy coins became the next spicier thing in the encrypted market. Privacy coins, such as Monero, Dash and Verge, take the perceived anonymity of cryptocurrency transactions and reinforce it to an entire group to completely hide the identity of a sender and a recipient of funds, as well as of the amount sent.

Now, a new hot trend has emerged in the encrypted space. Ladies and gentlemen, greet "burning coins".

The burning of coins is the latest trend in hot cryptocurrency

While the name might look like an investor with lighter fluid and a lot of fun too, I can assure you that there is no real fire with burning, that is, because virtual tokens only exist in digital form .

What money actually refers to is the process by which cryptocurrency miners – people with high-powered computers that validate transactions for coins that run on the test model – or developers send tokens to a specified address that has private keys that are unavailable. In simpler terms, it is a means of removing tokens from the rolling stock so as to slow down the rate of inflation of the currencies or reduce the circulating supply of coins.

If all this sounds strangely familiar, it is because it is similar to the concept of a publicly traded company that initiates an ordinary stock repurchase program. If a publicly traded company uses its liquidity to repurchase ordinary shares, it should reduce the total number of outstanding shares. In this way, it makes every residual quota more scarce than before, potentially increasing their value. Furthermore (at least for publicly traded companies), it may improve earnings per share as there are fewer outstanding shares with which to split net income.

The concept is similar to the burning of coins. By removing coins from the circulating offering, the perception is that each remaining virtual token is scarcer than before. This should work to increase their value, rewarding long-term and large-scale tokenholders.

Two cryptocurrencies that have recently embraced the burnt coins

In recent days, Bitcoin Cash has been on fire, with the virtual currency bifurcated by bitcoin last summer earning 94% over the week of devaluation, until late in the evening of April 23, 2018. While most people have scratched head and wonders what happened Bitcoin Cash, the answer seems to be nothing but burning-coins.

According to an announcement of April 20th chirping from Antpool, a cryptocurrency mining company that currently validates just over 8% of Bitcoin Cash transactions, is sending 12% of the coins it receives as a block premium for validating the transaction to these addresses that are impossible to break down into which can no longer be used. As mining creates new currencies, Antpool's actions are working to slow down the annual inflation rate for Bitcoin Cash's BCH token. This slowdown in inflation seems to have a positive impact on the price of the BCH token.

But even before Bitcoin Cash caught fire on the news of a large coin burning the miner, Binance Coin and his BNB token were embracing the idea of ​​burning coins. If the name rings a bell, it is because Binance Coin is the official currency of Binance's cryptocurrency exchange. Binance encourages users to use their BNB currency to pay transaction fees with staggered exchange commission discounts in the first two years.

In mid-January, Binance Coin ended up burning 1,821,586 BNB coins, and did so again in mid-April by burning $ 30 million in additional coins. Although Binance Coin did not have the same quicker move than Bitcoin Cash after the discovery of Antpool that burned some of its block premiums, Binance Coin was nevertheless among the most performing virtual currencies since the start of the year. year.

Burnt coins have a fairly net risk

On the one hand, some investors might see coins burned as a sign that cryptocurrency developers are finally starting to look for investors' well-being in their tokens. But assuming that the burning of the coins is a guaranteed result could end up being a mistake.

The biggest problem with the burnt coins is the assumption that it will always reduce the number of pending tokens, and that this intrinsically means that a virtual currency should go higher. The fact remains that the circulating offer of digital tokens tends to be very fluid and is often difficult to distinguish.

Get the bitcoin as a perfect example. Some argue that the scarcity of bitcoins is what makes it valuable. The bitcoin number is limited to 21 million tokens, which provides the perception of scarcity. Still, bitcoin has created new tokens on several occasions through cryptocurrency forks – that is, it is divided into a cryptocurrency caused by a disagreement among developers on what future road should be taken in relation to network updates. This is how Bitcoin Cash, Bitcoin Gold and Bitcoin Private were created. There is nothing to prevent bitcoins or other virtual currencies from starting over in the future, which provides a false sense of scarcity.

If there was a way to ensure the scarcity of a virtual currency, this would make the money-burner a creator of potentially intriguing value for existing port holders. But without this guarantee, it could prove far less effective in creating value and increasing the price of tokens than most cryptocurrency investors realize.