A token burn is defined as the act of destroying a certain number of cryptocurrency tokens in order to reduce the number of tokens currently in circulation.
Token burning is gradually becoming a more widespread feature of newer and future cryptocurrency projects.
Many well-established altcoins have also opted to adopt this concept.
Despite its name, token burning doesn’t actually require the disintegration of any existing tokens.
Rather, it’s quite impossible to destroy coins since the blockchain is immutable with its history and data unable to be altered in any way.
Instead, coins/tokens are algorithmically taken out of circulation by sending their signatures to a public address known as an ‘eater address.’
While not effectively destroying these tokens, they are designed to no longer be recoverable or usable.
This can be accomplished since the keys to these public addresses are often private and cannot be obtained by anyone.
Subsequently, all burnt tokens are then recorded on the blockchain for all nodes to see and confirm that the coins have been indeed destroyed.
Why Are Tokens Burnt?
Token burning invariably serves to eliminate coins from distribution, though differs tremendously in the scope of execution.
Certain projects will execute a one-time burn after their Initial Coin Offering (ICO) in a bid to help eliminate any unsold tokens.
Additionally, other projects will instead opt for periodic burning tokens based on the token’s respective utility and size.
This can be done through a predetermined interval or at random.
Finally, project developers can also choose to buy back their tokens from exchanges and take them out of circulation by sending them to the aforementioned ‘eater address.’