In this article of QuantVan we are going to explain,”what is coin burning?” , “what are the purposes?” and “what is BNB burn?”
Coin burn in cryptocurrencies means sending some of the coins of native cryptocurrency or some other currency to a public address from which those particular coins can never be spent because the private keys of such an address are unobtainable. This public address should be available on the block chain for anyone to review such a transaction.
In other words Coin burning is the process of permanently removing coins from circulation, reducing the total supply. By reducing the number of tokens in supply, developers and miners hope to make the tokens that remain in circulation rarer and, therefore, more valuable.
Before bitcoin cash got in on coin burning, Binance Coin (BNB) explored this strategy.
Purposes & Goals:
Coin burn is typically done for purposes such as:
- making new tokens or coins
- rewarding the token or coin holders
- destroying unsold tokens or coins after an ICO or token sale
When the BNB was still part of the Ethereum network, Binance performed periodic Coin Burn events through the
use of a smart contract function known as burn function. The BNB burning events are scheduled to take place every quarter until 100,000,000 BNB are finally destroyed, which represents 50% of the total BNB ever issued (200,000,000 BNB). However, the amount of BNB coins to be burned is based on the number of trades performed on the exchange within a 3-months period. So after each quarter, Binance burns BNB according to the overall trading volume.
How does it work?
Basically speaking, a token burn event happens in the following order:
- A coin holder will call the burn function, stating that they want to burn a nominated amount of coins.
- The contract will then verify that the person has the coins in their wallet and that the number of coins stated is valid. Only positive numbers work.
- If the person does not have enough coins, or if the stated number is invalid (e.g., 0 or -5), the burn function will not be executed.
- If they do have enough, then the coins will be subtracted from that wallet. The total supply of that coin will then be updated, and the coins will be burned.
If you execute the burn function to burn your coins, they will be destroyed forever. It is impossible to recover coins after they are burned.
In other words, the BNB contract has a function known as burn function, which is available to anyone, at any time. By calling this function one can permanently remove a nominated amount of coins from the circulating supply. All coin burns are recorded as a transaction on the block chain, meaning that they are 100% transparent and anyone is able to verify that the coins have been destroyed.
As soon as a quarterly Coin Burn takes place, Binance makes an official announcement that specifies the amount of BNB coins that were burned (based on the trading volume for that quarter). You can verify all BNB ERC-20 Coin Burn transactions on an Ethereum block chain explorer. The burning transactions are public, irreversible and permanently recorded on the block chain.
Since the launch of Binance Chain, the BNB ERC-20 tokens were gradually swapped by the native BNBs. This means that the Coin Burn events now take place on the Binance Chain and not on the Ethereum network.
It is worth noting that all BNB ERC-20 coin burns were “replicated” on the Binance Chain, to ensure that the total supply is the same. In other words, the total 11,654,397 BNB ERC-20 tokens that were burned on the Ethereum network, were also burned on the Binance Chain, right after the mainnet launch. You can check this specific burning transaction on the Binance Chain Explorer. Also, the total supply of BNB is publicly available for anyone to see.
As of October 2019, Binance completed 9 BNB Coin Burn events. In total, 14,525,153 BNB coins were burned, reducing 7.26% of the Total Supply (now at 185,474,825).