Coin burn is a common practice in which the token issuer removes some tokens or cryptocurrencies from circulation, which leads to lowering inflation rates and total coin supply.
Coin burn is something like stock buyback which companies carry out on equity markets.
This leads to reducing supply and raising market value. Accordingly, major shareholders can benefit from the process on the long run.
Four reasons behind coin burn
Since it is difficult to hold the tokens for a while and reoffer them again, companies remove such tokens permanently.
It is well known that the main purpose of the burn is to control the circulating number of tokens and thus raising the market value.
In addition, the token issuer may resort to coin burn for financial restructure and confirmation of asset ownership, but tokens are burnt usually for deflationary purposes.
How does token burn work?
To remove the tokens from the platform, miners move them to certain address including inaccessible keys.
It is important to make sure that the tokens cannot be accessed, or such coins cannot be retrieved.
Then, the ownership of such coins to be burned is verified by smart contracts.
The request is rejected if the miner’s wallet does not contain the required number of tokens through the activation of the node.
When completing the burn process, it would be impossible to retrieve them.
This is almost one of the similar aspects between the burn of coins and banknotes because the latter could not be restored after being burnt.
What is the burn function?
The burn function is a feature provided by any trading platform such as Binance, and it is usually available to anyone and at any time.
Through this function, the client can remove a certain amount of his coins. The burn process is registered on the Blockchain, to ensure the transparency of the process so anyone can be aware of the burnt tokens.
In addition, when an institution, company or exchange completes the burn, it announces the number of burnt tokens and time of burn.
What are the most popular burnt coins?
Binance is one of the platforms that burn some coins every three months. Earlier this year, the exchange has announced its 10th Binance Coin (BNB) burn, through which 2.2 million coins were destroyed.
The exchange committed itself to destroy half of the 200 million available BNB tokens.
Another example is Tether which creates tokens when depositing funds in its reserves, and then burns such tokens when withdrawing funds.