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:
- Deflationary pressure by reducing supply
- Increase scarcity to potentially boost asset value
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:
- Binance Coin (BNB)
- Bitcoin Cash (BCH)
- Stellar (XLM)
"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:
- Energy-efficient vs. PoW
- Rewards miners in proportion to burned assets
Variants:
- Burn the same coin you mine
- Burn other cryptocurrencies
👉 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:
- Ethereum’s EIP-1559 fee-burning
- Binance’s BNB Auto-Burn program
Major Cryptocurrencies That Burn Tokens
- Ethereum (ETH) – Burns base fees via EIP-1559
- BNB – Targets 100M BNB burned total
- Shiba Inu (SHIB) – Community-driven burns
- Stellar (XLM) – Burned 55B tokens in 2019
- Filecoin (FIL) – Burns a portion of gas fees
Risks and Criticisms
- Potential Scams: Developers may fake burns to manipulate prices
- Whale Masking: Burns might hide large holder activity
- No Guaranteed Price Increase: Fundamentals > token supply
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.