The Knowledge Shot: what is a coin burn?

What is a coin burn?

A coin burn is an event happening in the blockchain, where a holder of coins destroy some of them, or “burn” them.

Instead of doing a normal transaction to another address, the holder sends his coins to a burner address (ie an address belonging to nobody and without a private key).

When you send coins to a burner address, it is irreversible, these coins are destroyed forever. There is no way to recover them.

Why do that?

Mainly, crypto projects burn coins for two reasons:

  • to reward coin/token holders

  • to destroy unsold coins/tokens from ICOs

Who does it?

Binance has popularised the coin burn concept to reward its BNB token holders. How does it work? To sum up, when the exchange platform of Binance is used by anybody, they pay fees and some of these fees are burned every once in a while.

It is a way of rewarding BNB holders as the BNB supply decreases once a burn occurs. It is basic demand/supply economics. If supply decreases and demand stays the same, price goes up.

There are other projects using the burn mechanism to reward holders such as Maker or Aave.

Thanks for reading

Secret Salsa