Author - Daniels Kenneth In category - Cryptocurrency exchange Publish time - 2 August 2023

how to burn crypto coins

As a result, this practice can also add to the appeal of a token as a “store of value.” Burning tokens can also benefit those staking tokens to validate transactions in a proof-of-stake protocol. When a large chunk of tokens are removed from circulation, there’s a likely chance they’ll receive a higher U.S. dollar value from their staking rewards.

Mutant Serums came in the form of NFTs, which are still crypto tokens, that remained in circulation until holders burned them to create Mutant Apes. In order to use the serum to create Mutant Apes separate from the original Bored Apes, Mutant Serums had to be sent to the abyss and taken out of circulation forever. Sometimes burning crypto has little or no impact on a token’s value, and scammers have often used masked burning events to attempt to steal crypto from investors. The speed at which coins are created through PoW reduces each time a new block is mined. This promotes regular activity by the miners; instead of mining one coin when mining first begins, miners must burn their early coins and mine new ones.


Algorithmic stablecoins are cryptocurrencies that maintain a stable price through preset rules or algorithms. One of the mechanisms that algorithmic stablecoins use to manage their prices is coin burning. When the price of the stablecoin is above the target price, it means there is an excess supply of the stablecoin in the market. To reduce the supply and bring the price back down to the target, the algorithmic stablecoin initiates a coin-burning mechanism. Burning tokens can increase the value of a cryptocurrency by decreasing the supply of tokens in circulation. Generally, when fewer tokens are in circulation and the demand remains the same, the price per token will likely increase.

Ethereum is one of the largest and most popular networks in the world. It is a decentralized blockchain platform that allows developers to deploy dApps and smart contracts. ETH is the native currency of Ethereum and is the second-largest cryptocurrency by market capitalization after Bitcoin (BTC). ETH is used to pay for gas fees and incentivize miners to process transactions and secure the network. In July 2021, the Shiba Inu community launched a burn portal called ShibaBurn on ShibaSwap.

how to burn crypto coins

Some blockchains use crypto burning as a consensus mechanism, which requires crypto miners to burn coins to mine new blocks on a blockchain. Another way to put it is miners have to spend a little money to make more money. Some blockchains leverage crypto burning to take other tokens out of circulation. For example, mining a new specific coin may require a miner to burn Bitcoin. Oftentimes, crypto is burned by owners or developers of crypto projects. Project owners may purchase a sum of the project’s available currency on the market themselves and send it directly to burner addresses.

It will look like the developer owns 10% of the supply because the original supply was 1 billion. But the developer really owns 25% of the 400 million tokens still in circulation, which is obviously a much larger amount. Burning tokens can happen for various reasons, and the NFT market has leveraged the process to create rewards for holders. For instance, when Yuga Labs first launched the Mutant Ape Yacht Club collection, the Web3 brand airdropped Mutant Serums to every Bored Ape holder to transform their apes into Mutant Apes.

This demonstrates a long-term commitment to scarcity, making token holders marginally richer than they would have been otherwise. The change in the value of tokens can be significantly affected by a reduced supply of that token in circulation. This result is one that many projects achieve as they burn large amounts of their coins in circulation.

Even so, in the long run, burning tokens tend to support an asset’s price and is considered a positive move. Alternatively, investors may know a token burn is going to happen and “price it in” at an earlier point. The process of coin burning is a journey that can help a cryptocurrency community feel more involved. It builds trust in the road map and the system designed for its token community. Reducing the supply of token coins in the crypto market is a great way to generate value when implementing the laws of demand and supply.

FSB’s Proposed Recommendations on Stablecoins and Cryptoassets

The address, which is called a burn address or eater address, can’t be accessed or assigned to anyone. Burning tokens’ most significant advantage is that it helps curb inflation. When there are more tokens in circulation, the value of the cryptocurrency can decrease due to the oversupply.

how to burn crypto coins

Over 860 BNB is burned daily on the Binance platform, and a portion of the BNB burned coins are gas fees spent through the Binance BSc platform. Binance has destroyed around 2,065,152 BNB coins to partake in burns. Coin burning is similar to a company buying a large number of its shares, but it’s different because coins burnt can not be resold, unlike shares. Some proof-of-burn cryptocurrencies require that miners burn the same currency that they’re mining. The Shiba Inu community announced the launch of a new burn mechanism as part of its upcoming Layer 2, Shibarium.

Large Quantities Needed to Make an Impact

Crypto burning may be implemented into a project as an automatic, built-in mechanism, routine maintenance run on a periodic schedule or as a one-off event. Some projects crash their tokens by doing this, which can be tragic for community members. Companies that partake in this are called hidden whales, and they can lead to a token burn backfiring against a token project.

  • In the case of burning crypto, however, coins are sent to a “burner” or “eater” address with no known private key.
  • Coin burning is often used by crypto projects to boost market value and appeal to more investors.
  • Token burning is the process by which a crypto coin project burns a certain amount of its crypto coin digital assets.

Depending upon the implementation, you’re allowed to burn the native currency or the currency of an alternate chain, such as Bitcoin. In exchange, you receive a reward in the native currency token of the blockchain. “The economic rationale for crypto burning is to control the supply of digital assets,” said Russell Stanley Geronimo, a corporate lawyer specializing in blockchain, decentralized finance and tokenomics. The Terra project, for example, burned 88.7 million of its LUNA tokens in November 2021. The tokens represented around $4.5 billion in value at the time, which the company said made the event one of the largest layer 1 token burns ever. The purpose of the burn was partly to remove value from Terra’s community pool, where founder Do Kwon argued it was not needed.

There are a few other practical reasons for burning cryptocurrency. Once tokens are sent to a frozen private wallet, those tokens are automatically burnt from the overall circulation tokens in the coin market and therefore become inaccessible to any user. A frozen private address is a burn address with no private keys for granting access to coins. A stock buyback is when the company that issued the stock buys shares back at the market price and reabsorbs them, reducing the number of total shares in the market.

How Does Token Burning Work?

Various projects may differ in their methods of allowing users to partake in token burning, but the idea remains the same. By burning cryptocurrency, a project can reduce the total supply of its tokens in circulation and gradually increase its value over time. As mentioned earlier, burning tokens can also help maintain or increase the value of a cryptocurrency. By reducing the number of tokens in circulation, the demand for the remaining tokens can increase, increasing their value. Some projects’ communities engage in large scale token burns, which drives publicity, subsequently raising awareness of the cryptocurrency, increasing demand and raising the token price.

Shibarium is an ecosystem of decentralized applications (dApps) that run on the Ethereum network. It is designed to be a platform for developers to create new applications compatible with Shiba Inu. The decision to burn crypto may be written into a project’s whitepaper prior to launch, outlining full intent to nix fractions of its supply along the way. It may also be put to a community vote, letting the decentralized autonomous organization, or DAO, decide whether to burn or not to burn.

Impact of London Upgrade Post-Merge

The action can influence investor and user sentiment which would have more of an effect of driving prices up and down. Removing an asset from circulation to adjust availability and value is not a new concept. For example, central banks adjust the amount of circulating currency to adjust that currency’s purchasing power.

Unfortunately, it doesn’t always work as intended and sometimes has the opposite effect. Shares are also repurchased as a method of control—companies can use this tactic to prevent a hostile takeover—the act of buying shares to gain a majority and thus ownership of the company. Going further, some platforms require miners to brand the tokens they validate, marking their public address to each batch of tokens they validate — a method known as proof of burn. By burning a set amount of coins, one can incentivize miners, or transaction validators, and other stakeholders to continue holding coins.

The purpose of the burn was partly to remove value from Terra’s community pool, where founder Do Kwon argued it was not needed. With PoB, coins get burned without energy waste by consuming a few resources to mine the coins you burn, and it also grants you the ability to write blocks equivalent to burnt ones. The PoB also helps to prevent fraud by verifying the transactions of new blocks added to a blockchain network. A cryptocurrency project can use scarcity to create an urgency for their community members to buy more coins, increasing value and demand over time. Another example of a method created for burning cryptocurrency is the burn portal created by Shiba Inu for burning Shib tokens and rewarding anyone who uses it.

Cons of Burning Tokens

By fronting a specified amount, a miner is then compensated with a block reward for verifying the transaction. In a similar way, algorithmic stablecoins automatically mint new tokens and burn them frequently to maintain their dollar-pegged value. By burning, projects are providing a stable token value that can benefit investors greatly, and as we all continue to partake in token burns, the blockchain network strengthens. Coin burning on its own doesn’t tell you whether a cryptocurrency is a good investment. By knowing how coin burning works, you can better understand the cryptocurrencies that use it. Most of the time, it’s the developers of a cryptocurrency who decide to burn a certain amount.

Token burning typically involves a smart contract or protocol mechanism that identifies and removes a specific number of tokens from circulation. The tokens are sent to an address with no keys, meaning no one can access the tokens. The process ensures the tokens are permanently removed from circulation, as no one can access them.

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