What does Token Burn mean? Why the technique of Token burn is used? How it helps? Why the the term “Burn” is used? We will discuss in this article why do projects burn token? How are these tokens burned? What is its impact on crypto landscape?

What does Token Burn mean?

Firstly, burning crypto assets can be compared to putting cash on fire. However, this process is more complicated than that to put it simply.

But why does a developer want to burn their tokens?

Chiefly, burning crypto assets means transferring them to a certain place (burn address) where they won’t be recovered forever.

Essentially, it means removing tokens from circulation permanently.

Simply put, burn addresses are virtual wallets that do not have private keys, making them inaccessible.

That said, sending tokens to these addresses eliminates them from the total supply, rendering them no longer tradable.

Essentially, a burn address is a digital wallet that can not be accessed because it does not have a private key, attached to it. Simply, like a lock that someone never built a keyhole for.

Simply, burn addresses are also sometimes referred to as eater addresses.

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Benefits of Token Burn

Firstly, burning tokens cause the remaining tokens in circulation to increase in price. This is because a highly demanded crypto asset with limited supply tends to trade for a greater price.

Secondly, a crypto project can burn its tokens in an effort to boost the value of its investors’ holdings.

But it is worth noting that token burn does not have an instantaneous impact on prices.

In addition to it, burning tokens can prove ineffective when other news related to a particular crypto asset has a bigger effect on the price movement.

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Token Burn – EIP-1559

Ethereum, the second largest cryptocurrency by market capitalization, has looked to burn mechanics as a method of transitioning users over to its new proof-of-stake network from proof-of-work.

Chiefly the Ethereum blockchain has adopted a burn mechanism called EIP-1559. Which burns ETH collected from transaction fees on this network to put it simply.

As of March 2023, over 2.6 million ETH, estimated to be worth $3.2 billion, has been removed from circulation since 2021.

Furthermore, last May Otherside NFT mint led to the burn of more than 88,000 ETH worth $150 million at the time.

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Token Burn – Shiba Inu

Firstly, Shiba Inu is one of the cryptocurrencies that employs a burn mechanism. Additionally, the developer of the meme coin introduced a SHIB Burning Portal last April.

Essentially, which allows holders of Shiba Inu to destroy their tokens in exchange for another crypto asset, BurntSHIB.

Furthermore, holders of this token receive rewards in RYOSHI tokens.

How do you Burn Shiba Inu?

Firstly, the Shiba Inu burn mechanism burns Shiba Inu coins. You can do this by sending coins to so-called “dead wallets”.

Additionally, you can send assets, but you can not retrieve them from this wallet. Chiefly, Shiba Inu uses two such wallets. In addition to it, they also use a “Black Hole”. This is the Genesis address.

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Token Burn – Stablecoins

Chiefly, there are a few algorithmic stablecoins that burn tokens to keep their prices stable.

Usually, creators of such stablecoins burn tokens when their prices go below the expected price to decrease supply and match the demand.

Conversely, they mint more tokens to increase supply and lower the token price if it exceeds the intended.

Firstly this month’s burn mechanism has been a matter of serious discussion since the downfall of Terra’s stablecoin UST last May 2022.

Basically, the crypto asset lost its peg after the mechanism failed, plunging to zero.

Since then, not a single stablecoin has consistently maintained its expected price through the mint-burn method or algorithms.

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Burning NFTs

Besides burning fungible tokens, sending NFTs to burn addresses is also possible. However, not many NFT projects have employed burn mechanisms.

Burn. art – Firstly, this NFT project was developed by Pak, a renowned NFT artist.

Further, it lets holders burn their digital art to receive a token called ASH, thus increasing the remaining NFTs’ value in the collection.

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Why the Burned term is used?

Firstly, burning is done by transferring the desired amount of burner tokens into an inactive, unlocatable crypto wallet.

Thereby, causing the tokens to be purposefully lost. Unable to be accessed, these tokens have essentially been destroyed, hence the term burned.

What is Proof of burn tokens?

Firstly, with proof of Burn, a portion of that coin base is sent to an address where they can not be spent (meaning there is no known private key) and thus the coins are burned off.

Secondly, the amount burned off is used to qualify for future coinbase rewards from new cryptos. This is like reversing the currency issue process.

Can Burned Tokens be Recovered?

Chiefly, these tokens are subtracted from the available tokens and are permanently destroyed.

Secondly, the most widely used way is to send tokens to a wallet without private keys, as this cuts off the burnt tokens from circulation. Though the tokens are not “destroyed” in this case, they can never be retrieved either.

How to check if tokens and liquidity are burned?

Firstly, in order to check if at least a part of the liquidity is burned before the farming starts, you can check the liquidity token contract for the current holders.

Secondly, if liquidity is “burned” this means it cannot be removed at any time. Thereby, having liquidity is a good sign for the investors, as it can not be removed short term. Which reduces the soft-rug risk a lot to put it simply.

Thirdly, if liquidity is removed this would lead to the problem that the investors can not trade their tokens anymore.

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Conclusion

Basically, being a decentralized technology, blockchain enables people to do whatever they want with their crypto assets.

Even if it means renouncing their ownership of such assets in a manner that they will never see them again.

That said, the decision to retain or burn your digital asset is all up to you.

Project developers can mislead their community by claiming to burn coins. While in reality, the coins are \ sent to a wallet that they control.

Once the price increases, the developers could sell off their coins and walk away with a hefty profit, leaving remaining stakeholders with worthless tokens.

This is just one variation of a rug pull.

There are several ways to reduce the risk of falling for a scam in the crypto space. The best method is to conduct as much research as possible into the founding members, smart contracts, and whitepaper of a project.

The crypto community is relatively new. So being wise to common vulnerabilities can protect you from bad actors who lurk in the shadows. 

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FAQs

How do you check your token burn?

Firstly, you can just check the current highest TokenId. If the token does not exist and it is less than the highest token, it is properly burned.

How much Luna is burned?

From a high of 18.8 billion LUNC burned in October last year, the figure fails to 9.2 billion at present.