Coin burning refers to the process of permanently removing cryptocurrencies from circulation to reduce the total supply of the coin. In other words, the coins are destroyed and can no longer be used for trading or anything else.
By making currency more scarce, coin burning aims to create a deflationary effect and potentially increase the value of crypto to benefit its holders. For BNB, the goal of coin burn events is to gradually reduce its total supply until it is below 100 million BNB.
While there are several ways to burn cryptocurrency, some projects implement a specific burning feature as part of their protocol. For example, BNB included a smart contract burning feature when it was launched.
With the rise of Decentralized Finance (DeFi) protocols, coin burning has become more common in the blockchain space. Ethereum (ETH) began burning the base ETH fee from all blockchain transactions after implementing the London hard fork upgrade in 2021.
To burn coins, a certain amount of crypto is sent to a smart contract or wallet address that cannot be used to make transactions and does not have private keys. This means that once the coins reach the address, they are lost forever and therefore removed from the available supply.
For more details on how coin burning works, see What is a coin burn?.
How is BNB burned?
BNB is the utility token that powers the BNB ecosystem. The initial total supply was 200 million BNB, but it is gradually decreasing due to coin burning. Burns will occur until 50% of the total supply is destroyed, reducing it to less than 100 million BNB.
There are two methods to burn BNB. The first consists of quarterly BNB burn events. The second was introduced in BEP-95 and involves burning a portion of the BNB spent as gas fees on the BNB Network.
Previously, quarterly BNB burns were based on BNB trading volume on the Binance exchange. But in December 2021, Binance announced the new BNB Auto-Burn. The BNB Auto-Burn mechanism automatically adjusts the amount of BNB to be burned based on the price of BNB and the number of blocks generated on the BNB Chain during each quarter. This provides greater transparency and predictability to the BNB community.