Peasants: We have found a witch! (A witch! a witch!) -- Burn her burn her!
Woman: I’m not a witch! I’m not a witch!
Vladimir: What makes you think she is a witch?
Peasant 2: Well, she turned me into a newt!
Vladimir: A newt?!
Peasant 2: I got better.
Peasant 3: Burn her anyway! (burn her burn her burn!)
Vladimir: What do you burn apart from witches?
Peasant 3: Wood!
Vladimir: So, why do witches burn?
Peasant 2: Cuz they’re made of... wood?
Vladimir: Gooood.
So, how do we tell if she is made of wood?
Peasant 1: Build a bridge out of her!
from Monty Python’s The Holy Grail
Image source
The valuation of cryptocurrencies is inherently tied to building bridges (i.e. transactions between users -- transactions that leave BOTH parties of the transaction better off -- thus leading to a net increase in the overall well-being of society and the world).
Burning crypto is about as valuable as burning bridges (or witches), imho.
I have yet to hear a really good argument for burning cryptocurrency (except maybe for crypto that is in a closed system -- where it’s only use case is narrowly defined and fully functioning -- maybe BEE fits this description, and BNB? -- In such a closed system, the crypto token is more an investment mechanism for the ‘system’ or ‘platform’ rather than a currency).
I get the argument that burning tokens reduces supply and thus puts upward pressure on price. However, if you take that to its logical extreme, you should burn all the tokens except 1, and that single token will be, in the case of bitcoin, the first trillion-dollar-coin. Except that, who are you going to trade it with?
With an extreme reduction in supply, there will be an extreme reduction in new hands, and thus a concomitant reduction in (future) demand. With a modest reduction in supply, there will be a modest reduction in new hands (and thus maybe upward pressure on price, but the loss of new hands might just offset the upward price pressure, and it could possibly go the other way -- see @urun’s comments about $DOGE at the end of this post ). With a tiny reduction in supply, there will be (imho) zero increase in value -- it’s just not something that gets people’s attention and thus does not move the needle (at all, imho).
Again, look at $DOGE -- it is being mined at an unbelievable rate (14.4 million new $DOGE PER DAY), yet nothing seems to stop its valuation from going up (thanks, Elon!). (As a side note, the fact that $DOGE can be bought as a speculative investment via RobinHood etc. does the long term valuation of $DOGE no favors -- solid valuation will come from people holding actual $DOGE tokens in actual wallets. So, if you are curious about $DOGE, track the number of accounts holding it rather than the current market price).
Also, for you $DOGE lovers out there, check out this 2-minute video comparing U.S. currency to $DOGE.
Quite honestly, I don’t think REDUCTION in supply by burning affects the valuation of a token in a significant way, and for a token that is struggling to find its way into the hands of new users (and doesn’t this include all tokens, to some extent?), a steady increase in supply is a good thing, as long as that supply is finding its way into new hands -- and that probably holds true until the token becomes the world’s de facto currency.
One final thought: rather than burning tokens (especially low-liquidity tokens, like POB), wouldn’t it be better if those tokens were used to fund a liquidity pool instead of disappearing into the ether?
Thanks to @calumam (for this post) and @failingforwards (for this post) and others for inspiring me to finally take a few minutes to explain some of my thoughts on this topic.
And, @edystringz recently put together a good summary of some of the previous conversations related to this topic.
I have more thoughts, but the above will have to suffice for now.
That’s my $0.02, 0.0342 HIVE, 0.0331 LEO, 0.0305 DOGE, 0.0129 HBD, 5.72E-6 ETH, 3.51E-7 BTC.