Things to know before the first token burning event of GES Global
GES Global intends to proceed the first token burning tomorrow (November 28) with an expected amount of 5 million GES. The following article will provide the necessary knowledge for investors to understand the nature of token burning, as well as the obvious benefits it can bring to all GES owners.
What is token burning
The term token burning is used to refer to permanently stopping circulating a certain amount of digital currency in the market.
Token burning is quite common now, in part because it doesn’t require a complicated technological process. This is usually a deliberate move made by a project developer to remove a certain amount of digital currency from the total issue.
While there are many reasons driving token burning, the main purpose is still to reduce inflation. Major blockchains like Bitcoin and Ethereum do not use this mechanism. However, it is the solution for startups like GES Global to control the amount of money circulating and give more incentive to investors.
The token burning mechanism is only applicable to digital currencies because it is difficult to remove large amounts of fiat money from the economy. Burning tokens is like companies buying back shares on their own to reduce the amount of shares circulating in the market.
How’s token burning operate
The purpose of token burning is to reduce the amount of tokens currently in circulation, but it can be done in a variety of ways.
All burned tokens will not be available in the future. This process involves project developers buying back or removing some of the digital currency from circulating cash flows.
To do this, a project developer like GES Global will put the token in a non-recoverable public wallet or “eater address”. Here they will freeze these tokens permanently, only allowing the number and type of tokens to be viewed. The rejected coins status is immediately updated on the blockchain.
There are different ways to burn tokens depending on the developer’s plan. Some burn tokens right after the first ICO to remove all inventory tokens and motivate investors, while others do it periodically.
A good example is GES Global. The company pledges to hold a monthly token burning event until it removes 300 million GES, or 60% of the supply. On average, 5 million GES are permanently discontinued each month in the market.
Similarly, Binance also plans to burn quarterly to 100 million BNB. The amount of BNB burned varies according to the number of transactions executed on the platform each quarter.
Other companies like Ripple also burn tokens over time. Every time there are transactions made through XRP, a party can place a token fee to make the transaction. Those fees will be burned and transferred to an eater address account as soon as the transaction is completed.
The purpose of token burning
Token burning is often done as a solution to curb inflation. Most developers remove tokens themselves to maintain a stable exchange rate and retain investors.
While there are many reasons for a company like GES Global to choose to burn tokens, it is always beneficial for crypto holders. Thereby, they promote the value of the token through reducing supply.
Theoretically, the less amount circulating in the market, the more valuable the digital currency is. This is the reason that most projects today often limit the supply, as well as the cash flow.
By controlling the flow, the company can push the price of tokens sold, while also attracting more investment. This is one of the important reasons that motivates Binance and some companies to burn tokens periodically or immediately after the initial ICO.
Additionally, the developer may burn the token to fix the problem in some cases. Tether, for example, inadvertently created a $ 5 billion USDT amount. The company proceeded to burn these tokens to maintain a 1: 1 exchange rate against the USD.
For security tokens, tokens allow investors to buy all the issued tokens, burning tokens like buying back shares from companies. Tokens will be purchased at a reasonable rate and then burned immediately to increase the value of the remaining tokens.
If the developer accepts to pay at the market price, the investors can make a lot of money based on the exchange rate difference compared to the initial listing.
Finally, some companies burn tokens to limit the number of virtual transactions and increase security. Ripple proceeds burning transaction costs to eliminate the risk of overloading the system and minimize the risk of falling victim to DDoS attacks.
Unexpected efficiency from token burning
Burning tokens potentially creates a more reliable consensus mechanism for verifying and adding transactions to the blockchain.
The popular mechanism for token burning is a Proof-of-Burn (PoB) consensus algorithm, which requires users to burn tokens to gain mining rights. While Proof-of-Work is also relatively widely used, it consumes a lot of resources and is expensive. PoB tries to solve this problem by limiting the number of blocks miners can verify to match the number of tokens they burned. In other words, they create virtual mining pools that get bigger, proportional to the amount of tokens burned.
In theory, burning tokens could reduce the number of miners and reduce the need for resources as competition drops. But in reality, it gives too many advantages to sharks, who can burn large amounts of tokens.
To solve this problem, some companies use PoB to reduce miners’ mining capacity when verifying transactions based on the rate of decay. Therefore, miners must continuously burn tokens to maintain a competitive position.
Benefits for investors
Not only the project developer, the investor also benefits from the token burning process.
At first glance, token burning is built to ensure developer benefits. However, it has the potential to bring about additional profits for investors. In many cases, burning tokens helps stabilize the value of the digital currency and curb price inflation.
Stable values give investors a great incentive to keep digital assets and keep prices at a profitable level. It also feels trustworthy, especially in the early stages of the digital currency’s development.
Another good reason why companies like GES Global burn leftover tokens after an ICO is to show transparency in front of investors. A company selling undistributed tokens on the exchange may gain more profits but incur accusations of fraud or profit-seeking.
On the other hand, this is also seen as an affirmation that the company is only using the money raised for its business in order to value the digital currency at a more equitable level.
As for projects like Ripple, burning tokens will increase security for users and allow them to conduct transactions securely.
|GES Global’s First Burn event took place from November 28, 2020. This is a monthly event with 5 million GES tokens expected to be burned each month. The company pledges to burn tokens for five years, until it removes 300 million GES (60% of all GES issued).Any questions please go here.|