Note: The first section of this article explains the previous burning feature of Binance Coin while it was on the Ethereum network. Binance Coin is now on BNB Beacon Chain, so the burn function behaves differently. However, the discussion still applies to all current ERC-20 tokens that support the burning feature.
Coin burning is the process of permanently removing cryptocurrencies from circulation, reducing the total supply. To explain how this works, we'll use Binance Coin (the former BNB ERC-20) as an example. The previous BNB contract, while on the Ethereum network, can be found here.
When Binance Coin was still part of the Ethereum network, Binance carried out periodic coin burning events using a feature of smart contracts known as the burn function. BNB burning events are scheduled to occur every quarter until 100,000,000 BNB are eventually destroyed, representing 50% of the total BNB issued (200,000,000 BNB).
The amount of BNB coins to be burned is based on the number of transactions made on the exchange within a 3-month period. Then, after each quarter, Binance burns the BNB according to the overall trading volume.
However, it seems that a considerable number of people still do not understand how coin burning is executed. This article aims to provide relevant information regarding the burning function and quarterly BNB burning events.
How does it work?
Basically, a token burn event occurs in the following order:
A cryptocurrency holder will request the burning function, indicating that they want to burn a designated amount of coins.
The smart contract will verify that the person has the coins in their wallet and that the indicated amount of coins is valid. The burning mechanism only allows positive numbers.
If the person does not have enough coins, or if the indicated number is invalid (for example, 0 or -5), the burning function will not be executed.
If the holder has enough, the coins will be subtracted from that wallet. The total supply of that coin will be refreshed, meaning the coins were permanently burned.
If you run the burn function to burn your coins, they will be destroyed forever. It is impossible to recover coins after being burned, and thanks to blockchain technology, proof of burning can be easily verified in a blockchain explorer.
In other words, the Binance Coin contract has a feature known as the burn feature, which is available to anyone at any time. By requesting this feature, you can permanently remove a specified number of coins from the circulating supply of a blockchain network. As we have mentioned, each coin or token burning event is recorded as a transaction on the blockchain. The burning mechanism is transparent, and anyone can verify that the coins have been destroyed.
As soon as a quarterly coin burn takes place, Binance makes an official announcement specifying the amount of BNB coins that were burned (based on the trading volume for that quarter). In an Ethereum blockchain explorer, such as Etherscan, you will be able to see all BNB ERC-20 coin burning transactions. Burn transactions are public, irreversible and permanently recorded on the blockchain.
In Etherscan, you can view the details of a burn transaction in the Input Data box.
If you click on Decode Input Data, you will be able to see the amount of BNB that was burned. The number includes 18 decimals, so in this example, 1,623,818 BNB was burned.
The current burning function on Binance
Since the launch of BNB Beacon Chain, BNB ERC-20 tokens were gradually exchanged for native Binance Coins (BNB BEP-2). This means that coin burning events now take place on the BNB Beacon Chain and not the Ethereum network.
It is worth noting that all BNB ERC-20 coin burns were “replicated” on the BNB Beacon Chain to ensure 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 Beacon Chain (just after the mainnet launch). You can review this specific burn transaction in the BNB Beacon Chain explorer. You can also check the total BNB supply.
The current BNB burning mechanism no longer depends on a smart contract, but rather on a specific command executed on the BNB Beacon Chain. You can find more details on the BNB Chain Docs page
As of April 2022, Binance has completed 19 BNB coin burning events. In total, 36,723,852.37 BNB coins have been burned, reducing the total supply by 18.36% (now putting it at 163,292,674.61 BNB).
BNB Destruction History (Quarterly Coin Burning).
