The latest in the series of Dragon Guides we explore what a coin burn is and the reasons for burning coins. Dragon will be initiating an economic coin burn.

Unique to the digital currency market, coin burning is often used after the Initial Coin Offering (ICO) phase of a project has ended to remove any unsold tokens from the market.  Unused coins are destroyed by sending them to an 'eater' wallet address, (sometimes referred to as a black hole) to remove them from circulation.  Nobody has access to the private keys, therefore, rendering the burn process impossible to reverse and of course, the transaction is publicly recorded and verifiable on the blockchain.

There are several reasons for burning coins.  Firstly, some companies adopt what's known as a Proof-of-Burn (POB) model to achieve consensus across a distributed network, meaning that both miners and users are required to burn a portion of their coins. Miners acquire the rights to mine blocks by destroying their coins rather than having to purchase and run expensive mining equipment.  This system is used in cloud or 'virtual' mining, which is beyond the scope of this article.

A bitcoin mining rig and software programme. Photo: Koh Mi Fong

Some companies employ a POB system as part of their ICO that requires interested investors to send Bitcoin to an eater address in exchange for the company's native tokens.  This way, the newly created tokens have an immediate value because the same number of Bitcoins were destroyed to create the new digital currency.

The simple economic laws of supply and demand dictate that if something becomes scarce, then the value of that item increases. Unlike fiat currencies, the number of Dragon Coin (DRG) is fixed, meaning that no more coins will be created once the final supply count is complete.  So if demand increases, prices increase since there is a limited number of DRG in circulation.  Likewise, when the supply of DRG further decreases due to the soon to be carried out economic burn, the price of DRG will increase since there is now a reduced amount of DRG to satisfy people’s demands.

The economic burning of DRG destroys any unsold tokens which effectively distributes value back to DRG holders and once again demonstrates Dragons commitment to support its community and the dedication of the team to ensure long-term success. Dragon team doesn’t stop there once the hard launch has happened we will carry out monthly buy back and burn process at the end of each calendar month this throws up several questions which we look forward to discussing with you in our community Telegram group.

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For those Hodlers out there benefits such as supporting the growth of DRG and helping stabilise its price, are just a couple of the value-added propositions the team have built into the Dragon Ecosystem.

The Dragon coin burn signals the long-term commitment by the Dragon team and aims to add significant value to DRG holders who have been the core supporters of Dragons development.  

The buyback and burn of tokens from the open market reinforces Dragon’s growth prospects as they get ready to soar! So get ready to come on this exciting journey with us by getting hold of some Dragon Coin and downloading your free Dragon Social Wallet now.