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Deflationary cryptocurrencies are digital currencies that are designed to decrease in supply over time, leading to a reduction in the overall circulating supply of the cryptocurrency. This is in contrast to inflationary cryptocurrencies, where the supply of tokens increases over time.
The concept of deflationary cryptocurrencies is often associated with mechanisms that are intended to reduce the circulating supply through various means. One common method is through token burning, where a certain number of tokens are intentionally destroyed or removed from circulation. This can be achieved through smart contracts or other mechanisms embedded in the cryptocurrency’s protocol.
The idea behind deflationary cryptocurrencies is to create scarcity, similar to how precious metals like gold are considered valuable due to their limited supply.
Deflationary crypto projects employ two methods to reduce coin supply:
- Buyback-and-Burn: The project’s overseeing company repurchases a significant volume of coins and sends them to a dead address, effectively erasing them from circulation. Examples include BNB, FTT, and CAKE.
- Burn-On Transactions: In this approach, a portion of transaction taxes is programmed to be burned, directly reducing supply. Its effectiveness depends on trading volume, as the deduction happens during transactions.
The Importance of Deflationary Cryptocurrencies
Cryptocurrencies highlighted on the deflationary list tackle challenges encountered in traditional finance. Consequently, deflationary cryptocurrencies exert a favorable influence on the digital currency domain due to the following attributes:
- Profit Amplification: The reduction in supply stimulates heightened demand for crypto assets, resulting in an escalation of their value.
- Limited Supply: Rather than inundating the market, the deflationary mechanism is constructed to eliminate coins from circulation. If coin issuance errors occur, rectification necessitates the burning of surplus coins, retaining only the necessary quantity.
Some Top Deflationary Cryptocurrencies:
Bitcoin (BTC)
Undoubtedly, Bitcoin stands as the quintessential representation of cryptocurrency for many individuals. Bitcoin and the term ‘cryptocurrency’ have been used interchangeably for quite some time now. As one of the pioneering digital assets to enter the market, it rightfully claims the top spot on the list of deflationary cryptocurrencies. Bitcoin encompasses aspects of both inflationary and deflationary currencies. It exhibits inflationary characteristics through the continuous addition of coins via the mining process. Simultaneously, Bitcoin demonstrates deflationary traits as miner rewards are halved every four years.
The upper limit of Bitcoin’s supply is set at 21 million coins. Upon achieving this threshold, further coin creation ceases, leading to the cessation of block rewards for miners.
Binance Coin (BNB)
The Binance network’s native coin employs the Buyback-and-Burn approach to decrease the quantity of BNB coins. The Binance team repurchases coins from investors who have gained over 20% profit in the previous quarter and directs them to inactive addresses.
Initially, the overall supply of Binance coins stood at 200 million, making them deflationary crypto coins. Binance aimed to burn roughly half of this amount, reducing it to 100 million coins. On October 18, 2021, the 17th quarterly BNB burn was successfully conducted, resulting in the incineration of 1,335,888 BNB. As of January 16, 2022, the total supply of BNB coins now stands at 166,801,148.00 BNB.
Litecoin (LTC)
Every four years, the mining rewards for LTC undergo a halving process, effectively diminishing the rate at which Litecoin is produced. This gradual reduction is set to continue until the total supply reaches the capped milestone of 84 million coins.
PancakeSwap
Taking its place in our roster of deflationary cryptocurrencies is the indigenous token of the PancakeSwap ecosystem. Unlike other digital assets, this crypto coin lacks a predefined maximum supply. However, it adopts an innovative strategy, the coin burn mechanism, to effectively manage its supply. The CAKE token undergoes a daily reduction of -560,400 and per block at a rate of -18, ensuring a dynamic approach to supply control.
Polygon (MATIC)
At the core of the Polygon Network, the native token takes on a dual role, fulfilling two pivotal objectives: facilitating transaction fees and engaging in the Proof of Stake (PoS) consensus mechanism. Delving into its official documentation, one discovers that Polygon has devised an intriguing strategy: a portion of transaction fees, calculated in each block, is meticulously burned. This unique approach is engineered to offer steadfast reinforcement to the MATIC coin’s intrinsic value.
Ripple (XRP)
XRP stands out as a notable addition to our compilation of deflationary cryptocurrencies because of its distinct merits. In the realm of XRP mining, each transaction entails fees that contribute to its deflationary nature. These transaction charges deviate from the conventional route of being funneled to central entities or validators as rewards. Rather ingeniously, they are subjected to incineration, thereby embedding XRP as an exemplar of the deflationary crypto coin category.
Conclusion
In culmination, the compilation of deflationary cryptocurrencies represents the pinnacle selections curated by the StormGain team. While these stand out prominently, the landscape boasts an array of other deflationary crypto coins, among them Ethereum Classic (ETC), Tenset (10SET), Filecoin (FIL), Bomb (BOMB), Nuke (NUKE), and more. The progressive reduction in supply, through deliberate burning, imparts an ascending value trajectory to these tokens. This inherent rarity renders such coins not just investments but rather profit-bearing ventures, fortified against the waves of inflationary pressures.
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