Cryptocurrency tokens or coins are considered “burned” when they have been purposely and permanently removed from circulation.
Cryptocurrency
tokens or
coins are
burned when they are permanently removed from the circulating supply on purpose — as opposed to assets that are lost on accident, like by being unintentionally sent to an
address with no owner or via the loss of access to the
wallet where they are stored.
Token burning is usually performed by the development team behind a particular cryptocurrency asset. It can be done in several ways, most commonly by sending the coins to a so-called “eater address”: its current balance is publicly visible on the
blockchain, but access to its contents is unavailable to anyone.
The practice of burning may involve the project’s developers buying tokens back from the market or burning parts of the supply already available to them.
Burning can be done with different goals in mind, but most often it is used for
deflationary purposes: the decrease in the circulating supply tends to drive an asset’s price upward, incentivizing traders and investors to get involved.
Another important use case for token burning is to maintain the price peg of
stablecoins (cryptocurrencies whose value corresponds to another asset, like the U.S. dollar): by burning or minting new tokens as necessary, the controlling authority can influence the asset’s price to remain at a near-constant level.