Note: The first part of this article explains the previous burn function of Binance Coin when it was on the Ethereum network. Binance coin is currently on the BNB Beacon chain, so the burn function varies. However, this methodology still applies to all existing ERC-20 tokens that support the coin burn function.
Coin burning is the process of permanently removing cryptocurrencies from circulation, reducing the overall inventory level. To illustrate how this is achieved and how it works, we will use Binance coin (old BNB ERC-20 coin) as an example. You can view the previous decade of BNB when it was available on the Ethereum network here.
When Binance Coin was part of the Ethereum network, Binance would periodically perform token burns through the use of a smart contract function known as a burn function. The BNB burn is scheduled to take place every quarter until up to 100,000,000 BNB are destroyed, which represents 50% of the total stock of BNB issued (200,000,000 BNB).
The calculation of the amount of BNB coins to be burned depends on the number of trading transactions on the platform during a three-month period. So after every quarter, Binance burns BNB depending on the total trading volume.
However, there seems to be a large group of people who cannot understand how to perform a coin burn. This article aims to provide some information regarding the coin burn function and the quarterly BNB token burn operations.
How does it work?
Simply put, the token burning process occurs in the following order:
The holder of the cryptocurrency uses the burn function, indicating that he or she wants to burn a specific amount of coins.
The smart contract verifies the currencies that a person has in his wallet and also validates the number of currencies mentioned. The burning mechanism will only work for positive numbers.
If a person does not have enough coins, or if the numbers mentioned are incorrect (eg 0 or -5), the burning function will not run.
If he has enough coins, the coins will be deducted from the wallet. The total inventory of this currency will also be updated, which means that the coins will be burned permanently.
If you use the coin burn function, your coins will be destroyed forever. It is impossible to recover coins after burning, and thanks to blockchain technology, proof of burning can be easily verified on the blockchain explorer.
In other words, a BNB contract includes a function known as the burn function, which is available to anyone at any time. By using this function, you can permanently remove a specific amount of coins available for trading in the blockchain network. As mentioned earlier, each token burning is recorded as a transaction on the blockchain. The burning mechanism is transparent, and anyone can verify the destruction of the coins.
Once the quarterly coin burn is implemented, Binance will officially announce the amount of BNB tokens burned (based on trading volume during the quarter). You can check all BNB ERC-20 token burning transactions on an Ethereum blockchain explorer, such as Etherscan. Coin burning transactions are public, irrevocable and recorded forever on the blockchain.
By using Etherscan, you can see the details of the burn transaction in the Input Data box.
If you press Decode input data, you will be able to see the amount of BNB coins that have been burned. The number will include 18 decimal places, as shown in this example. 1,623,818 BNB have been burned.
Existing Binance coin burning function
Since the launch of the Binance Chain, BNB ERC-20 tokens have been gradually swapped by native Binance tokens (BNB BEP-2). This means that coin burns are currently occurring on the Binance Chain and not on the Ethereum network.
It is worth noting that the BNB ERC-20 token burn has been “replicated” on the Binance Chain to ensure that the total amount of stock is equal. Thus, the process of burning 11,654,397 BNB ERC-20 tokens on the Ethereum network that had previously been burned on the Binance Chain (after the mainnet launch) was repeated. You can view this coin burn transaction on the Binance Chain Explorer. You can also see the total stock of BNB.
The current BNB token burning mechanism does not rely on smart contracts anymore but relies on executing a limit order on the Binance Chain. You can see more details on the Binance Chain documentation page.
As of April 2022, Binance has completed 19 BNB token burns. In total, 36,723,852.37 BNB coins were burned, reducing the total coin supply by 18.36% (it currently stands at 163,292,674.61 BNB).
BNB coin burn record (quarterly coin burn).