Note: The first part of the article explains the previous burning function of Binance Coin when it was on the Ethereum network. Binance Coin is now available on Binance Chain. Therefore, the burning function now works in a different way. However, these procedures still apply to all ERC-20 tokens that support this functionality.
Coin Burn is the process of permanently removing a number of cryptocurrency coins from circulation, reducing the total supply. To explain how this process works, we will use Binance Coin (former BNB ERC-20) as an example. You can find the previous BNB contract on the Ethereum network here.
When Binance Coin was still part of the Ethereum network, Binance implemented periodic coin burn events through the use of a smart contract called the burn feature. BNB burn events are scheduled to occur quarterly, only stopping until all 100,000,000 BNB are burned, which is 50% of all BNB ever issued (200,000,000 BNB).
The amount of BNB burned is based on the number of transactions made on the exchange over a 3-month period. So, after each quarter, Binance will burn BNB according to the overall trading volume.
However, a large number of users still do not understand how cryptocurrencies are burned. Therefore, this article aims to provide information about the BNB burn feature and quarterly burn events.
How does it work?
Basically, token burning events happen in the following order:
A cryptocurrency holder will perform the burn feature when they want to get rid of a certain specified amount of coins.
The smart contract then verifies that the person has the coins in their wallet and that the specified amount of coins is valid. The burning mechanism only accepts positive amounts.
If the person does not have enough coins or if the specified amount is invalid (e.g. 0 or -5), the burn feature will not be executed.
If they have enough, the specified amount of cryptocurrency will be deducted from that wallet. The total supply of the coin will be updated later and the cryptocurrencies will be burned.
If you use this feature to burn your coins, your coins will be destroyed forever. Funds cannot be recovered once they are burned, and thanks to blockchain technology, proof of burning can be easily verified on the blockchain explorer.
In other words, the BNB contract has a function called the burn function, which is available to anyone and can be used at any time. By invoking this feature, users can permanently remove a specified amount of cryptocurrency from the circulating supply on a blockchain network. As mentioned, every token burn event is recorded as a transaction on the blockchain. The burning mechanism is transparent and anyone can verify that the coins have been destroyed.
Every time the quarterly Coin Burn event takes place, Binance makes an official announcement clearly stating the amount of BNB coins burned (based on trading volume in that quarter). You can verify all BNB ERC-20 Coin Burn transactions on an Ethereum blockchain explorer, such as Etherscan. Burn transactions are public, irreversible, and permanently recorded on the blockchain.
On Etherscan, you can see the details of the burn transaction on this Input Data box.
If you click on Decode Input Data, you can check the amount of BNB burned. This number is a single digit consisting of 18 decimals. So, with this example, we can understand that 1,623,818 BNB were burned.
Current Binance Burn function
Since the launch of Binance Chain, BNB ERC-20 tokens were gradually swapped for native Binance Coins (BNB BEP-2). This means that Coin Burn events now take place on Binance Chain and not on the Ethereum network.
It is worth noting that all ERC-20 BNB burns are “replicated” on Binance Chain to ensure that the total supply is the same. Thus, 11,654,397 BNB ERC-20 tokens previously burned on the Ethereum network were also burned on the Binance Chain (this event took place immediately after the mainnet launch). You can check this burn transaction specifically on Binance Chain Explorer. You can also check the total BNB supply.
The current BNB burn mechanism is no longer based on a smart contract, but on a specific order executed on Binance Chain. You can find more details on the Binance Chain Documentation page.
As of July 2022, Binance has completed 19 BNB Coin Burn events. In total, 36,723,852.37 BNB coins were burned, reducing Total Supply by 18.36% (currently at 163,292,674.61 BNB).
BNB Burn History (Quarterly Coin Burn).