Token Burn

Token Burning, in the context of cryptocurrencies, refers to the process of permanently removing tokens from circulation, thereby reducing the total supply of that particular token. This process is achieved by sending a certain number of tokens to a public address, known as a “burn address,” from which they can never be spent because the private keys of this address are unobtainable. The burn address is typically generated randomly and is not associated with any particular user in the network.

Token burning is a common practice in the cryptocurrency world and is used for various purposes. One of the primary reasons for token burning is to control the number of tokens in circulation and thereby maintain or increase the value of the remaining tokens. This is based on the economic principle of supply and demand: when the supply of a token decreases while demand remains the same or increases, the price of the token tends to rise.

For example, Binance, one of the world’s largest cryptocurrency exchanges, regularly burns its native Binance Coin (BNB) as part of its commitment to decrease the total supply from the initial 200 million to 100 million BNB. This is done to increase the value of the remaining BNB tokens and reward holders with a potentially higher price.

Another reason for token burning is to pay for transaction fees within a blockchain network. In the Ethereum network, for instance, a portion of the gas fee (the cost of performing operations like transactions and smart contract interactions) is “burned” or removed from circulation.

Token burning can also be used as a mechanism for proof-of-burn consensus algorithms, where miners must show proof that they have burned some coins—i.e., sent them to a verifiably unspendable address—to create a new block. This is seen as an alternative to proof-of-work and proof-of-stake consensus mechanisms.

It’s important to note that token burning does not guarantee a rise in the price of a token. The effect of token burning on the token’s price depends on various factors, including the overall demand for the token and market conditions.


  1. “Initial coin offerings and the value of crypto tokens.” Momtaz, Paul P. The Journal of Finance 75.3 (2020): 1343-1385. Link
  2. Non-fungible tokens (NFTs): Overview, valuation, and the size of the market.” Dowling, Michael. Finance Research Letters (2021): 102140. Link
  3. “Understanding Token Burning in Cryptocurrency: A Comprehensive Guide” HaasOnline. Link

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