DeFi
September 28, 2022
What is Token Burn and it's effects on price
An A-Z guide on token burning and how it is largely impacting the cryptocurrency industry.
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The concept of cryptocurrencies can be a bit complicated for some people at times but they are just an alternate form of currency. The cryptocurrency tokens are used as a mode of paying money for a trade. They are intended for payments and transferring values across blockchains.
Although, the concept of tokens is a bit different as well. There are a number of blockchains based tokens out there that get utilized in a different way. The blockchains and networks like Bitcoin, Ethereum, Matic, Binance, etc have primary assets in the form of cryptocurrencies.
Like the Ethereum network has Ether as its primary assets or Binance has Binance coin. These tokens are used to trade assets in the crypto world as well as to perform transactions on their individual networks. All the blockchains and networks are platforms that allow the trade of cryptocurrencies in a secure, decentralized manner.
Let us find out more about some individual cryptocurrencies and their corresponding blockchains.
For anyone who knows even a little about cryptocurrency is surely familiar with the term Bitcoin as it is the number one cryptocurrency available out there. Well, Bitcoin is nothing but a digital currency that does not fall under any controlling authority. It uses the P2P network eliminating the need for any third party.
Bitcoin was established back in 2008 by someone called Satoshi Nakamoto. However, it came into action by 2009. It may seem a long time but yes, Bitcoin has been around since that long. As time passed by Bitcoin started gaining popularity and reached a stage where it is called Digital gold.
The Bitcoin transactions that take place are recorded on a public ledger called blockchain and are verified and encrypted by a technique called cryptography. These bitcoins are generated by a process called mining.
Bitcoins can be used to exchange other cryptocurrencies, services, products, and much more. There have been many conspiracies about Bitcoin being used for illegal trades and has gained criticism. However, just last year in 2021 in the month of September one of the countries in Central America (El Salvador) acculturized Bitcoin as a legal means of trade.
Now that you know about the establishment of Bitcoin and what it is, let us now move on to understanding how the Bitcoin blockchain works and what the Bitcoin lightning network is.
Bitcoin basically uses two networks; one of which is the Bitcoin network which is its own network and the other is the lightning network which is a second layer added on top of Bitcoin’s blockchain for various purposes. We will be talking about the Bitcoin lightning network in this article as it is more widely used.
So, a lightning network is an added layer that is used to carry out off-chain transactions. It is very useful as it enables users to carry out transactions with parties that are not on its own blockchain network. It was introduced to boost the transaction speed and to solve the scalability problem of Bitcoin.
Bitcoin lightning network enables the adoption of other cryptocurrencies and waives off the transaction restrictions boosting the number of transactions that take place at a given amount of time. It helps you to carry out off-chain transactions with low transaction fees and said convenience.
Even though the Bitcoin lightning network has many advantages, it even has certain drawbacks. It brings some problems like malicious attacks and routing fee issues as sometimes they are very low. Malicious attacks can cause a network congestion problem and low routing fees make it difficult to validate very small transactions.
The Bitcoin lightning network is nothing but a type of blockchain layer. So, it acts as a P2P medium between two parties. Once a medium is established between two parties, those respective parties can carry out a number of transactions at low transaction charges.
In order to create a medium of transaction, one shall add and lock a certain amount of Bitcoins to the respective network and once it is done the party at the other end can receive it as per requirement. Lightning network enables users to carry out the smallest transactions without affecting the Bitcoin network.
When a transaction medium is established between two parties, the user can decide whether he wishes to carry out more transactions with the said party or wishes to close the medium. The transaction that takes place is at a very low transaction fee and is sometimes even free, and it takes place instantly.
Now, when a certain established medium is closed after a number of transactions, it is then that the records of this transaction are recorded on the primary blockchain of Bitcoin. So, when such off-chain transactions are made, the final value of the transaction is added to the main blockchain and there is no mention of the internal transactions that take place.
The use of lightning networks is on the rise. As cryptocurrency has become very popular, people have started using it for day to day transactions and so the adoption of the lightning network is in demand. So, we can safely say that as there are constant developments and modifications in current technology, the future of the lightning network looks pretty good.
Ethereum is a blockchain network that allows you to trade cryptocurrencies by charging a small amount of fee. Although that is not the sole function of this network. The main cryptocurrency of Ethereum is Ether(ETH). Like any other cryptocurrency, ETH allows you to be in control of your currency with complete security assurances without any 3rd party involvement.
The ETH cryptocurrency is what powers Ethereum. It is the second-largest cryptocurrency out there after Bitcoin. When you use the Ethereum network, the fee that you pay is charged in ETH. If you decide that you want to stake ETH, then you would be able to earn rewards on the Ethereum blockchain. ETH can even be used to generate new cryptocurrencies on Ethereum.
It can even be lent to someone or borrowed from them and used to earn some interest on ETH or any other ETH-backed tokens. Ethereum is a programmable network and hence, the developers can develop dApps on it in any way they want to. Some 7 years ago, all you could do on Ethereum was send ETH but there's a whole lot of things that you can do now.
The Ethereum network is an open network that is available to everyone who wants to deal with digital and decentralized money in a secure and easy way. Ethereum doesn't ask you for all your details, only the necessary ones and you can even trade money with a person through it and that too in a very fool-proof manner.
Ethereum allows its users to even upload programmes which are called Smart Contracts. The Ethereum Smart Contracts can be written in a number of Turing Complete languages like Solidity. The source code of it is compiled into a bytecode representation and the contracts have a special constructor function that enables memory initialization.
The cryptocurrency Miners execute the codes in the Ethereum Virtual Machine and there are constant efforts being made to make the platform an even better place for traders. Ethereum has a lot of uses including the trade and transfer of tokens or for the creation of smart contracts, etc. All these things get reflected on the blockchain.
To perform all these activities, a certain gas fee is required. So when you want to do a transaction, you will have to pay its respective gas fee in ether as we mentioned before. If there is any amount of gas fee that goes unused, then it gets returned to the account holder.
In case the gas of a particular transaction is depleted completely before the transaction can complete, then the transaction gets aborted. One of the advantages of Ethereum is that it is an open-source blockchain and comes with all of its benefits.
You must have heard about the Binance exchange platform and its associated Binance Ecosystem. The Binance coin is the native token of this ecosystem. The Binance Coin was launched in 2017 by Changpeng Zhao who is CEO of Binance.
The BNB is just like any other cryptocurrency which can be used to trade but the primary motive of this coin is to allow users to pay the fees with ease and participate in different events like IDOs or launchpool at lower fees.
As I said, this cryptocurrency is the native token of the Binance Ecosystem, you can get benefits from different products of the binance ecosystem by using BNB at discounted fees and lower restrictions.
In a nutshell, the Binance coin can be used to trade with other cryptocurrencies or to pay bills or make online purchases on the supported webstores. Most importantly, you can pay any required fees on Binance exchange using BNB. Now let us get to Binance’s own Binance Chain and Binance Smart Chain.
If you use Binance Exchange or have used it in the past then you must be aware about the huge Binance Ecosystem which includes CEX, DEX, launchpool and a variety of financial services which brings a number of opportunities to invest in cryptocurrency.
As the Binance coin and the products surrounding it began to gain popularity among investors, they decided to launch their own blockchain in April 2019 called Binance Chain. Let's talk more about Binance Chain.
The newly launched Binace Chain became the marketplace for trading its own Binace Coin and other cryptocurrencies. The Binace Chain is a public and decentralized blockchain developed with the goal of bringing faster trading speeds to its platform.
Later on the DEX platform was developed on the Binance Chain which is the largest dApp developed on its blockchain. Just like the Binance DEX, this blockchain allows developers to build decentralized apps on top of it.
To summarize the Binance chain provides the following functionality and advantages:
However, the main Binance chain had a few limitations which is a huge setback for most users. Let's take a look at the limitations.
To offer the users more features and utility, Binance developed a side chain known as Binance Smart Chain (BSC). This side-chain was aimed at improving at all the sectors where the main Binance chain was lacking.
Binance Smart chain is a side-chain which runs parallel to the main Binance chain. It was developed in 2020 and provided all the missing features of the main Binance chain to remove all the factors which could limit its users from using the Binance ecosystem.
The main motive of the Binance Smart Chain is to bring smart contracts functionality to the Binance Ecosystem With the help of BSC. Users can create and make use of smart contracts while they still can get benefits of the main Binance Chain which offers better trading facilities and speeds.
Another huge improvement was in terms of dApps. The BSC is an Ethereum Virtual Machine (EVM) which means that the Binance smart chain is actually an Ethereum compatible chain. Therefore you can either develop dApps directly on the BSC or can run your dApps developed on Ethereum network on the BSC without any compatibility issues.
That’s how the users can enjoy the extended flexibility using both the main Binance Chain and Binance Smart Chain and can bridge between these different chains to get the added benefits of each chain.
Matic is nothing but a solution for users on Ethereum Network, it is an Ethereum-baser Token which has its own network and it powers the Polygon Network. Matic is said to be the Layer 2 side chain of Ethereum with faster transactions. The highlight of this token is, it provides a cheaper transaction fee than ethereum. You have to pay very less gas fee here.
Users can easily deposit their ethereum tokens to a polygon smart contract. Users can use these tokens in the polygon and if they wish to remove it or withdraw in ethereum, they can withdraw them back to ethereum main chain. People use this token and network as the medium to save the gas fee and make use of proof of stake consensus.
In a Nutshell you can consider Matic as the alternative option for ethereum (Primarily to save gas fee). You will find a number of identical characteristics between Ethereum network and Polygon, both the networks share lots of similarities. Matic is a very huge platform, and there is a lot to understand about it.
To understand more about this token, we’ll briefly explain the Polygon network and how it works.
Polygon is the structure or a framework which allows the developer to create Ethereum’s Internet of Blockchains, in other words developers can create their own blockchain compatible with ethereum in one click.
You may have a thought about what is the difference between matic and polygon. Matic was rebranded as polygon as the company observed a growth. Polygon is more like a primary base to an ethereum blockchain, it is collaborative and retains its self sovereignty.
Working of polygon isn't more complex. It provides a platform for a developer to create their own custom blockchain, it is developed in a way that users get benefitted from Polygon's proof of stake side chain. This speeds up the transaction and leads to low gas fees by using a network of validators, all this process continues on ethereum mainchain.
Polygon basically supports two types of chains i.e. stand alone chain and secured chain. Stand alone chains are the one's which are directly compatible to ethereum based networks; on the other hand secured chains focus more on the user's ecosystem. Most of all polygon system stand alone chains will be matic chains.
In Later updates developers can observe the support for other side chains and enterprise chains. Polygon supports a variety of blockchain mechanisms, mostly developed and designed to multiply transactions.
Talking about viable plasma, polygon supports only matic plasma scaling solution. In this scaling solution, it offloads all the transactions to polygon matic PoS from Ethereum main chain. All the process is completed before finalizing on the mainchain.
Polygon is trying to provide developers freedom to design anything they are comfortable with by Adding support to the scaling solution. Polygon rebranded the network but kept Matic as their native token.
Polygon is still developing and expanding its polygon DeFi ecosystem. Other than being used for saving gas fees it is largely used for participating in governance. Earlier matic was more like layer 2 scaling solution, but polygon has expanded and the project growth made it the platform to build what a developer wants.
That’s all about Cryptocurrencies And Their Networks. Adding closure to this article. We covered all main stream coins and their networks and tried to explain them with their working. Hope you understood everything we shared, if you have doubts on it, you can comment that down below.
If we missed any important information or facts, please share with us in the comment section. We will love your contribution towards our crypto community. If you like this article you can check out more of these on our website, to read more new articles in future, stay tuned with us!
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