Token burning is a prominent and crucial tactic numerous cryptocurrency ecosystems employ to keep their economy stable. Introduced soon after the invention of Bitcoin, token burning was adopted by multiple household names, including Ethereum, Binance and even Bitcoin Cash.
The reason behind such wide adoption is that token burning is an effective and swift way to correct undesirable price trends and stabilise the economy. However, token burning might not apply to all crypto ecosystems. Today, this article will discuss whether token burning is good for Dogecoin.
Key Takeaways
- DOGE is a meme coin that catapulted to global success, accumulating an impressive market cap of $8.93 Billion.
- DOGE supports community-driven activities and motivates its users to trade instead of holding digital assets.
- Token burning is a practice that allows cryptocurrencies to decrease total token circulation and stabilise falling prices.
- While DOGE creators are against burning, this practice could be useful for the long-term success of the meme coin.
Dogecoin and Meme Coins Explained
Before analysing the complex dynamics of Dogecoin’s token-burning potential, let’s define Dogecoin and understand its unexpected success. Dogecoin is the first member of the meme coin niche. Meme coins, as the name suggests, are cryptocurrencies with a more lighthearted approach to developing a digital currency. Most meme coins share the tendency to be named and designed after popular internet memes or other animated characters.
Additionally, meme coins are notorious for their strong community backing and enthusiastic members. Meme coins also support creativity and bold ideas from their community, posing fewer restrictions and regulations on their members. However, meme coins are also mostly volatile and speculative.
Speculative coins are digital assets with no inherent value, which does not bode well for their price stability. Most meme coins are of a speculative nature, and combined with their uneven reputation, meme coins often struggle to maintain a stable price.
Dogecoin was the first of its kind, effectively introducing the concept of meme coins by accident. Initially conceived as a joke, Dogecoin achieved unprecedented and highly unlikely success, garnering a massive following across the globe. As of 2023, Dogecoin has a market cap of $ 8.93 Billion.
This astronomical growth baffles many industry experts, as numerous legitimate cryptos struggle to achieve this success. Not only did Dogecoin not plan to become famous, but its creators actively made every attempt to present absurd conditions in their crypto ecosystem. However, Dogecoin was a breath of fresh air in the homogenous crypto landscape, offering a creative and fun way to enter the crypto market. Thus, Dogecoin attracted a new audience to the crypto industry, which in turn skyrocketed its popularity.
The Fascinating Story of Dogecoin
As blockchain technology entered the digital market in 2009, it didn’t take long for this sector to become a global industry. Even as of 2012, the global public took notice of the emerging blockchain wave. However, as with any other industry, not everyone approached the blockchain landscape completely seriously.
Created by two brilliant engineers, Billy Markus and Jackson Palmer, Dogecoin was the first cryptocurrency that refused to take itself seriously. The creators openly stated that Dogecoin was conceived and created as a lighthearted joke, parodying the swiftly developing blockchain industry. However, Billy and Jackson did not stop at Dogecoin’s name or image.
They made an active effort to complicate Dogecoin’s token structure to an absurd level. Dogecoin creators actively contradicted any established crypto ecosystem practices, from completely randomised rewards to practically limitless coin distribution. However, the seemingly strange design and structure decisions did not scare away the public, as Dogecoin’s website was swarmed with crypto enthusiasts.
When the Dogecoin creators grasped the significance and scope of their pet project, they modified their approach slightly but kept Dogecoin’s fun and playful nature. Moreover, Dogecoin allows supporters to donate funds to charities and kickstarters without any hassle. Soon after, Dogecoin became famous for numerous high-profile charities and fundraisers. Throughout the years, the Dogecoin community grew thanks to Dogecoin’s fascinating approach to building a crypto ecosystem.
Crypto enthusiasts tired of conventional ecosystems and practices started actively adopting Dogecoin. Moreover, Dogecoin’s creators removed the coin distribution limit, making the token-holding activities obsolete and encouraging active coin trading instead of speculation. Today, DOGE is a great alternative currency with a unique community and distinct ideas about the crypto economy. Its creators managed to preserve the initial appeal and charm of the DOGE, which has positively impacted its development.
Token burning allows crypto creators and communities to decrease the supply of crypto tokens. As the total number of tokens drops and the demand stays the same, token prices increase.
Token Burning Explained
As discussed earlier in the article, token burning is a prominent tactic for controlling market prices for cryptocurrencies. The principle of token burning is relatively simple – creators and users effectively dispose of a certain crypto amount in circulation, which increases the demand for remaining tokens. As the demand rises, the price of a single crypto unit will also go upward.
Token burning has helped numerous creators to save their cryptocurrencies from significant price drops and crippling downturns. Since the crypto market remains highly volatile, it is essential to have adequate safeguards like token burning to stabilise the economy. Despite the efficiency and validity of token burning, this practice has yet to have unanimous approval in the crypto industry.
Many experts and creators believe that the crypto market should be free, dictated only by the supply and demand of its participants. Token burning goes against this principle, as it is an artificial way of adjusting the token circulation. Therefore, token burning effectively keeps the free market from naturally forming crypto market prices.
Thus, while burning could help in many situations, experts believe it disrupts the natural order of the crypto industry. The natural order is essential for this young market to mature and develop beyond the current volatile stages.
Could Token Burning Assist the Dogecoin Economy?
Currently, Dogecoin is strictly against burning practices as the creators believe that their fixed token distribution is enough to control price inflation. Dogecoin employs deterministic inflation, which entails that the periodic supply of DOGE is controlled and will change according to inflationary trends.
Thus, the creative minds behind DOGE believe that burning practices are not necessary, as the coin does not have arbitrary distribution limits and will supply currency according to the market demand. However, the empirical evidence points to a different reality. In practice, Dogecoin’s price has been fluctuating quite aggressively in the last year. DOGE has reached its lowest point for the entire calendar year, and the situation could worsen in the following months.
The reason behind such drastic price fluctuations is that Dogecoin is still largely speculative and, therefore, highly influenced by market shifts. DOGE will have problems maintaining stable price levels in case of bear runs or downturn scenarios. As the crypto market struggles to escape its volatility, burning practices could be a great short-term aid to keep the industry going. While employing burning practices is not strictly necessary for DOGE, the cryptocurrency could use price adjustments during stressful market periods.
Final Takeaways
Against all odds, Dogecoin has become a global sensation, accumulating a massive following and a respectable market capitalisation. However, DOGE’s prices have struggled to remain stable for long periods. While the creators believe that burning practices go against the free-form market nature, they could facilitate Dogecoin’s stability in uncertain or critical crypto periods.
