What Are Deflationary Cryptocurrencies?
Estimated Reading Time: 5 minutes
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. Take 2 minutes to learn more
These are cryptocurrencies that are programmed to steadily reduce their supplies over long periods of time. The aim of this is to guard against the crypto market being overwhelmed by cryptocurrencies while at the same time increasing the worth of these cryptocurrencies.
A deflationary cryptocurrency is a form of virtual money that gradually reduces its supply. Deflationary cryptocurrencies’ major objective is to keep the digital finance industry from becoming oversaturated with digital assets over time while raising the value of the currency.
Below is a scenario to illustrate how deflationary cryptocurrencies operate:
Imagine a cryptocurrency programmed to reduce its supply by 2% every year. Assuming its initial supply is 10,000 as of 2021. By 2022, its supply will be reduced to 9,800, and by 2023, its supply will have been reduced to 9,604. The reduction will continue. As a result, the demand for the token will eventually increase its price.
These cryptocurrencies make use of the usual means by which cryptocurrencies are withdrawn from the market, which are given and explained below:
Buyback-and-Burn: As the method’s name implies, the organization in charge of the project buys back a significant portion of its coins from the market and burns them by sending the coins to an address that is no longer in existence. Deleting the crypto assets also eliminates the coin’s supply that is currently in circulation. BNB, FTT, and CAKE are the three most well-known deflationary cryptocurrencies that employ this technique.
Transactions with Burn-On: This approach defines in the coin’s contract the percentage of on-chain transaction tax that will be burned. Because the deduction only occurs when a transaction occurs, the effectiveness of this strategy depends on the coin’s trading volume. More coins are taken out of circulation as trading activity increases.
The Purpose of Deflation in Cryptocurrency
Electronic assets on the deflationary crypto-list are focused on tackling the issues that the conventional financial sector usually encounters. Consequently, deflationary cryptos eventually have a positive effect on the electronic currency sector via the following characteristics, such as:
Profit Maximization: The reduced supply of these cryptos results in a rise in demand for them. Eventually, this causes their prices to increase.
Fixed Supply: The deflationary mechanism is intended to withdraw coins from circulation rather than flood the market. The only method to repair a coin distribution error is to burn the access coins and only preserve the necessary number of coins.
Top Five Deflationary Cryptocurrencies
Below is a list of some of the best deflationary cryptocurrencies in the electronic financial sector. Let’s briefly examine each of them.
Bitcoin (BTC)
There’s no denying that for many of us, Bitcoin is synonymous with cryptocurrencies. The top deflationary cryptocurrency on the list is one of the very first digital assets ever to be launched on the digital market. Bitcoin is a cryptocurrency that simultaneously increases and decreases in price. Inflationary in the sense that the mining process increases the supply of coins. Since the rewards to Bitcoin miners are halved once every four years, the currency is also deflationary.
There will only be 21 million Bitcoin tokens in existence. As soon as this limit is reached, no more BTC will be mined, so miners won’t be rewarded any longer.
Binance Coin (BNB)
Binance uses the Buyback-and-Burn method, which reduces the amount of their native coins (BNB). They buy BNB from investors whose profits have exceeded the 20% threshold in the previous quarter and destroy them.
The initial deflationary cryptocurrency coin supply for Binance was 200 million. To achieve 100 million coins, the Binance network intended to destroy nearly half of them. 1,335,888 BNB were burned as part of Binance’s 17th quarterly BNB burn on October 18, 2021. The total supply of BNB coins is 166,801,148.00 BNB as of January 16, 2022.
Litecoin (LTC)
Litecoin usually halves the rewards that it pays to miners every 4 years. This eventually diminishes the production of Litecoin as time goes on. Just like what was mentioned about BTC above, Litecoin will also stop rewarding miners once the supply of its native cryptocurrency reaches 84 million coins.
PancakeSwap (CAKE)
The next cryptocurrency on our list of deflationary cryptocurrencies is the native coin of the PancakeSwap ecosystem. The crypto asset uses the Coin-Burn strategy to control its supply even though it lacks a maximum supply. The supply of CAKE is decreased by -560,400 each day and -18 per block.
SafeMoon (SAFEMOON)
This cryptocurrency was launched to solve the problems associated with farming rewards. Here, investors that stake their tokens early will be paid the highest APYs, while new stakers do not get significant profits. SAFEMOON utilizes the Burn-On transaction approach and charges a 10% fee for every transaction. So, out of the 10% fee charged, 2.5% of it will be destroyed by being sold into BNB (burning).
Conclusion
Other deflationary cryptocurrency coins include Tenset (10SET), Filecoin (FIL), Bomb (BOMB), Nuke (NUKE), and Ethereum Classic (ETC), among others. Additionally, as a portion of their supply is used over time, their worth rises. Such coins are good investments because of their rarity and resistance to inflationary spikes.
