Understand the concept of coin burning

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Desculpe-nos, mas este texto está apenas disponível em Inglês Americano.

Coins/Tokens burn is a process by which a greater or lesser amount of tokens is permanently removed from circulation. This reduces the total supply of the cryptocurrency in circulation.

You are probably wondering where the tokens destroyed come from, is it to decrease the coins I have in my wallet? No, the destroyed tokens come from a completely different source.

For the most part, these are tokens redeemed in different cryptocurrency exchanges where it is listed, what is called buyback-and-burn or on the contrary, it can be a rest of tokens which were intended for precise operations like Airdrops, ICOs and IEOs but were not used up at the end of these operations.

Now that we know what a Token burn is and where the destroyed tokens come from, let’s learn how tokens burn works.

How Tokens burn works

Tokens burn is accomplished by a function called  “function burn” which can be performed by anyone in crypto-space. When the conditions are met and burn initiated, it is impossible to recover the number of tokens predefined at the start of the execution of the code. In fact, the function burn, just like the function transfer is saved on the blockchain in an irreversible and completely transparent way.

To shed more light on this practice, consider a burn as a transfer of money to a recipient who can never come into possession of that money. The burn of tokens comes down to this illustration, that is to say, that the predefined quantity of tokens to destroy and located on a recipient public address A that we know the private key is transferred to a recipient public address B which doesn’t correspond in principle to no existing private key. The burn transaction will be recorded on the blockchain as any other transaction and these tokens are forever unusable.

Here is the code that executes the burn function, it comes from an example of a token with the transfer and burn functionality on the ethereum blockchain. By looking briefly, we realize the code does this:

– Check if the sender has enough tokens in his balance

– Subtract tokens from the sender address

– Modify the total supply of tokens

On each destruction round, we deduct from the total supply of tokens initially released a predefined quantity of tokens which will be lost forever. The transfer function will subtract tokens from the sender address without ever changing the total supply of tokens.

Now understand why the tokens burn exists?

The purpose of token burn

It’s quite difficult to fully understand the concept of tokens burn when you don’t understand the law of supply and demand at first.

The idea is very simple, it is a game of creating an economic model in which the asset (cryptocurrency) will become more and more scarce while the demand for it will be more and more increasing or at least constant.

Scarcity is a widely used economic concept that gives more value to a particular asset and in this case, cryptocurrency. Unlike fiat currencies, cryptocurrencies are deflationary in nature.

This means that the coin supply for most cryptocurrencies is fixed, with no additional coins created once it has reached its total supply number. In the crypto space, this concept is used to ensure stability and growth in the price of a cryptocurrency in the benefit of holders. The best example is Bitcoin.

This is also how we recognize trustful crypto projects determined to work and bring the long term.

Token burn as part of the Monnos project

Monnos will operate on a buyback-and-burn model. That is to say that from the start of its native token (#MNS) trading on cryptocurrency exchanges, the project team will spend 20% of the income generated during the last three months on purchasing #MNS tokens in the sale on various exchanges and burn them immediately.

This operation will be repeated on the way until the destruction of 50% of the maximum supply initially defined.

Because Monnos intends to give it back to its most devout believers from the start, every token that will not be sold at the final IEO and not used for those reserved for airdrop operations will be also immediately destroyed.

Hang on! Monnos has just started a great and long adventure that will be full of innovations.

By community member Woagha “Justin” Eric