What is Coin/Token Burning

Token burning (or coin burning) is the process of permanently removing a cryptocurrency from circulation by sending it to an unspendable wallet address typically called a burn address or null address from which the coins can never be retrieved. Once burned, those tokens are gone from the circulating supply forever.

HOW TOKEN BURNING WORKS

A burn address is a wallet address with no known or mathematically derivable private key meaning no one can ever sign a transaction from it. Tokens sent there are permanently locked. The most common Ethereum burn address is 0x000000000000000000000000000000000000dEaD. All burns are publicly verifiable on the blockchain anyone can check the burn address balance using a block explorer.

WHY PROJECTS BURN TOKENS

Deflationary Supply Pressure: Basic economics if demand stays constant and supply decreases, price tends to increase. Burns are intended to create deflationary pressure and reward long-term holders.
Protocol Fee Burns: EIP-1559 (introduced in Ethereum's London upgrade in 2021) burns a portion of every transaction's base fee instead of paying it to validators. During periods of high network activity, ETH becomes net deflationary.
Exchange Revenue Burns: Binance burns BNB quarterly using a portion of trading fee revenue. As of 2024, over 47 million BNB have been burned.
Community-Driven Burns: Shiba Inu (SHIB) runs community burn programs where users and partners burn tokens to reduce the initially astronomical 1 quadrillion SHIB supply.

BURN MECHANISMS BY PROJECT

Bitcoin: Has no burn mechanism supply decreases naturally through halving.
Ethereum: EIP-1559 auto-burns base fees each block.
BNB: Quarterly buy-back and burn by Binance.
Shiba Inu (SHIB): Community and Shibarium transaction burns.

DO BURNS ACTUALLY INCREASE PRICE?

Burns reduce supply, which should support price if demand is stable or growing. However, if burns are used as a marketing tactic for fundamentally weak projects with no real utility, the price effect is typically temporary. Sustainable price appreciation requires genuine demand growth alongside supply reduction.

Terms in addition to the Coin/Token Burning

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.