What is Coin Burning? A Complete Beginner's Guide

·

A key term every crypto investor should know is coin burn or token burn—a deliberate mechanism to reduce the circulating supply of a cryptocurrency.

👉 Discover how top exchanges utilize coin burning

Understanding Coin Burning

Coin burning (or token burning) is the intentional destruction of coins/tokens by sending them to an inaccessible burn address (also called an "eater address"). These addresses are cryptographically locked, ensuring the assets can never be retrieved.

Purpose:

Projects may conduct burns:
✔️ One-time post-ICO to remove unsold tokens
✔️ Periodically (e.g., Binance burns BNB quarterly)

Historical Context of Coin Burning

The concept predates crypto, inspired by stock buybacks in traditional finance. It gained prominence in 2017–2018 with projects like:

"Coin burning lets new cryptocurrencies launch at low prices, then artificially increase value as adoption grows."

Proof of Burn (PoB) Consensus

An alternative to Proof of Work/PoS where miners burn tokens to earn mining rights:

Variants:

👉 Explore how PoB compares to other consensus mechanisms

Benefits of Coin Burning

| Benefit | Explanation |
|---------|-------------|
| Price Stability | Used by stablecoins to maintain peg |
| Investor Confidence | Signals long-term supply management |
| Whale Prevention | Reduces dominance by large holders |

Key Applications:

Major Cryptocurrencies That Burn Tokens

  1. Ethereum (ETH) – Burns base fees via EIP-1559
  2. BNB – Targets 100M BNB burned total
  3. Shiba Inu (SHIB) – Community-driven burns
  4. Stellar (XLM) – Burned 55B tokens in 2019
  5. Filecoin (FIL) – Burns a portion of gas fees

Risks and Criticisms

Due Diligence Tip: Always verify burn transactions on blockchain explorers.


FAQ

Q: How does coin burning increase value?
A: By reducing supply, it creates scarcity—assuming demand remains steady or grows.

Q: Can burned tokens be recovered?
A: No. Burn addresses are designed to be irrevocably inaccessible.

Q: Is proof-of-burn eco-friendly?
A: Yes, it consumes far less energy than proof-of-work mining.

Q: Do all cryptocurrencies burn tokens?
A: No. It’s a strategic choice by projects aiming for deflationary models.

Q: How can I track coin burns?
A: Check project announcements and blockchain explorers for burn transactions.

Q: Are burns always beneficial?
A: Not inherently. Effectiveness depends on project credibility and market conditions.