Coin burning is the process of permanently removing cryptocurrencies from circulation, reducing the total supply. To explain how this works, we will be using BNB Coin (the old BNB ERC-20) as an example. The previous contract for BNB, while it was on the Ethereum network, can be found here.
When the BNB Coin was still part of the Ethereum network, Binance performed periodic Coin Burn events using a smart contract function known as the burn function. The BNB burning events are scheduled to occur every quarter until 100,000,000 BNB are finally destroyed, which represents 50% of the total BNB ever issued (200,000,000 BNB).
Previously, the quarterly BNB burns were based on the BNB trading volume on the Binance exchange. But in December 2021, Binance announced that the Quarterly Burn would be replaced by the new BNB Auto-Burn.
The BNB Auto-Burn mechanism automatically adjusts the amount of BNB to be burned based on the BNB price and the number of blocks generated on the BNB Chain during the quarter. This offers greater transparency and predictability to the BNB community. BNB also has a real-time burning feature introduced with the BEP-95 protocol update. This burns a portion of the gas fees for transactions and smart contract interactions.
How Does a Coin Burn Work?
Basically speaking, a token burn event happens in the following order:
A cryptocurrency holder will call the burn function, stating that they want to burn a nominated amount of coins.
The smart contract will then verify that the person has the coins in their wallet and that the number of coins stated is valid. The burning mechanism only allows positive numbers.
If the person doesn’t have enough coins, or if the stated number is invalid (e.g., 0 or -5), the burn function won’t 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, meaning that the coins were permanently burned.
If you execute the burn function to burn your coins, they will be destroyed forever. It’s impossible to recover coins after they are burned, and thanks to blockchain technology, the proof of burn can be easily verified on a blockchain explorer.
In other words, the Binance Coin contract has a function known as the burn function, which is available to anyone at any time. By calling this function, you can permanently remove a nominated amount of coins from the circulating supply of a blockchain network. As mentioned, every token-burning event is recorded as a transaction on the blockchain. The burning mechanism is transparent, and anyone is able to verify that the coins have been destroyed.
As soon as a quarterly Auto-Burn takes place, Binance makes an official announcement that specifies the amount of BNB coins that were burned. You can verify all BNB ERC-20 Coin Burn transactions on an Ethereum blockchain explorer, such as Etherscan. For burns on BNB Chain, BscScan should be used to verify them. The burning transactions are public, irreversible, and permanently recorded on the blockchain.
If you click Decode Input Data, you can check the amount of BNB that was burned. The number includes 18 decimals, so in this example, 1,623,818 BNB were burned.
The Current Binance Burn Function
Since the launch of the BNB Chain, the BNB ERC-20 tokens were gradually swapped by BNB BEP-2 coins. This means that the Coin Burn events now take place on the BNB Chain and not on the Ethereum network.
It’s worth noting that all BNB ERC-20 coin burns were “replicated” on the BNB Chain to ensure that the total supply is the same. As such, the 11,654,397 BNB ERC-20 tokens that were previously burned on the Ethereum network were also burned on the BNB Chain (right after the main net launch). You can check this specific burning transaction on the BNB Chain Explorer. You can also check the total supply of BNB.
There are two methods to burn BNB. The first is known as BNB Auto-Burn, a protocol for quarterly BNB burning events. Some users who can prove they sent BNB to dead wallets can also include their coins in this quarterly burn and have their tokens refunded from the Auto-Burn amount. This is known as the BNB Pioneer Burn Program.
The second mechanism is a real-time burning mechanism introduced in the BEP-95 protocol update and involves burning a portion of the BNB spent as gas fees on the BNB Chain. As of April 2023, Binance completed 23 BNB coin burn events. In total, 44,833,226.65 BNB coins were burned, reducing the initial 200M supply by approximately 22.37%.