Description: Token burning is the process of permanently removing tokens from circulation on a blockchain. This mechanism is primarily used to reduce the total supply of a digital asset, which can influence its value. By burning tokens, they are sent to an inaccessible wallet address, meaning they cannot be recovered or used again. This process is a common strategy in the world of cryptocurrencies and non-fungible tokens (NFTs), where creators and developers seek to increase the scarcity of their assets, potentially leading to an increase in value. Token burning can also be used as a tool to reward existing token holders by decreasing the total supply and thus increasing demand. This process can be carried out programmatically or in response to specific events, such as meeting certain milestones in a project’s development. In the context of NFTs, burning can be used to eliminate unwanted versions of a digital asset, allowing only the most valuable or desired versions to remain in circulation, which can enhance their appeal and value in the market.
History: Token burning began to gain popularity with the rise of cryptocurrencies in the 2010s. One of the first significant examples was Ethereum’s improvement proposal EIP-1559 in 2021, where part of the transaction fees are burned, thus reducing the total supply of ETH. Since then, many cryptocurrency and NFT projects have adopted this practice as a way to manage the economy of their tokens.
Uses: Token burning is primarily used to control the inflation of a digital asset, increase its scarcity, and thus its value. It is also applied in reward programs for token holders, where a portion of the tokens is burned to benefit those who hold their assets long-term. In the NFT space, burning is used to eliminate unwanted or less valuable versions of an asset, ensuring that only the most desired versions remain in circulation.
Examples: A notable example of token burning is the Binance Coin (BNB) project, which conducts quarterly token burns to reduce its total supply. Another case is the game Axie Infinity, which allows players to burn certain NFTs to obtain more valuable or rare ones. These examples illustrate how token burning can be strategically used to influence the value and economy of a digital asset.
