Please note: The description at the beginning of this article is about the previous burn function of Binance Coin in the Ethereum network. Currently, Binance Coin is running in the BNB Beacon Chain, so the burn function behaves differently. However, the content discussed in this article still applies to all ERC-20 tokens that currently support the burn function.
Token burning is the process of permanently removing a cryptocurrency from circulation, thereby reducing the total supply. In order to clearly introduce how it works, we take Binance Coin (the old version of ERC-20 BNB) as an example. To learn about BNB’s previous contracts on the Ethereum network, please click here.
When Binance Coin was still on the Ethereum network, Binance used a smart contract function called a burn function to periodically burn tokens. BNB burn events are carried out regularly every quarter until 100 million BNB are finally destroyed, which is as high as 50% of the total supply of BNB (200 million).
The amount of BNB to be destroyed is determined by the trading volume of the exchange within 3 months. After each quarter, Binance destroys Binance Coin based on the overall trading volume.
However, it seems that quite a few people still have difficulty understanding how token burns are performed. For this reason, we have released this article that explains the burn function and the BNB quarterly burn event.
How does it work?
In general, token destruction events proceed in the following order:
Whenever the destroy function is called, it indicates that the cryptocurrency holder wishes to destroy a specific number of tokens.
The smart contract then verifies that the person has tokens in their wallet and that the amount is valid. The destruction mechanism only allows positive amounts.
If the person does not have enough tokens in their wallet or the amount is invalid (e.g. 0 or -5), the destroy function cannot be executed.
If sufficient quantities are available, the tokens will disappear from the wallet and the total supply will be updated to indicate that the tokens have been permanently destroyed.
If the token is destroyed by executing the destruction function, the token will be completely destroyed and cannot be recovered. Thanks to blockchain technology, the destruction proof can be easily verified through the blockchain browser.
In other words, the BNB contract has a built-in burn function that is available to everyone at any time. By calling this function, a specific number of tokens can be permanently removed from the circulating supply. As mentioned earlier, each token burn event is recorded as a blockchain transaction. The burn mechanism is open and transparent, and everyone can verify that the tokens have been successfully destroyed.
When conducting quarterly token burn events, Binance will issue an official announcement stating the amount of BNB burned (based on the trading volume of that quarter). All ERC-20 BNB token burn transactions can be verified through Ethereum blockchain browsers such as Etherscan. Burn transactions are public, transparent, irreversible, and permanently recorded in the blockchain.
You can view the details of the destruction transaction through Etherscan's input data box.
Click "Decode Input Data" to see the number of BNB destroyed. This number contains 18 decimal places. Therefore, the number of BNB destroyed in this example is 1,623,818.
Current Binance destruction function
Since the launch of BNB Beacon Chain, ERC-20 BNB tokens have been gradually replaced with native Binance coins (BNB BEP-2). This means that the token destruction event has been transferred from the Ethereum network to the BNB Beacon Chain.
It is worth noting that all ERC-20 BNB tokens destroyed have been "copied" to the BNB Beacon Chain to ensure that the total supply remains consistent. Therefore, the 11,654,397 ERC-20 BNB tokens previously destroyed on the Ethereum network were also destroyed on the BNB Beacon Chain (immediately after the mainnet launch). The specific destruction transactions can be viewed in the BNB Beacon Chain browser. In addition, you can also view the total supply of BNB.
The current BNB destruction mechanism no longer relies on smart contracts, but executes specific commands in the BNB Beacon Chain. For more information, please visit the BNB Beacon Chain documentation page.
As of April 2022, Binance has completed 19 BNB destruction events. The total amount of BNB destroyed reached 36,723,852.37, and the total supply decreased by 18.36% (the current supply is 163,292,674.61).
BNB destruction record (quarterly token destruction).
