Burn

In the context of cryptocurrencies, a burn refers to the process of permanently removing tokens or coins from circulation. This is typically done by sending them to an address where they can no longer be accessed, effectively reducing the total supply of the asset. Burning tokens is often used as a deflationary measure, aimed at increasing the value of the remaining tokens by decreasing supply.

How Token Burning Works

Token burning is usually conducted by a project’s team or community, with a certain number of tokens being “burned” at regular intervals or in response to specific events. It can be done manually or via smart contracts, and often, the address to which tokens are sent is designated as a “burn address.” These addresses are verifiably inaccessible, ensuring that the tokens are permanently out of circulation.

Why Tokens Are Burned

Token burning can serve various purposes. For instance, it helps projects manage inflation, maintaining the value of tokens by limiting supply. It can also be used as a form of reward or incentive, where token holders receive bonuses or other benefits for participating in the burn process. Some projects burn tokens as part of a periodic schedule, often linked to a portion of transaction fees.

Benefits of Token Burning

By reducing the supply of a token, burning can create scarcity, potentially driving up demand and price. It also helps align the interests of users and holders with the long-term goals of the project, ensuring token values remain strong over time.