You may have heard about some discussion around token burning but what exactly does it mean?
Most blockchains have what is know as a dead address, but this may also be referred to as the burn address. if tokens are sent to this address, they can no longer be retrieved. Think of it like a black hole, once inside, nothing is coming back out again.
Why would anyone want to send tokens there and lose them forever?
In the real world, to remove currency from supply, it can be physically destroyed. In the crypto world, if tokens need to be removed from circulation, they can be sent to the dead / burn address. The dead address is trusted not to be owned by anyone, which means once they are sent there, they cannot be retrieved. A couple of reasons why token developers may want to burn some of their tokens are:
To reduce inflation and make the token deflationary (less tokens means less supply and potentially higher price)
There is a significant change to the project, which means a different supply is required.
The benefit of using the burn address is that it adds trust that the tokens cannot be brought back into the supply by any malicious actor. For example, if a developer decided to go rogue, this supply cannot be accessed and sold.
You will see that on each blockchain explorer, there is a statement of:
“This address is commonly used by projects to burn tokens (reducing total supply).”
We are put a link to the burn addresses in a few blockchains below so you can take a look:
