When reading about cryptocurrencies such as Binance Coin BNB, Iconomi ICN, you’ve most likely encountered the term “coin burn”. While the term might sound negative, it is actually a popular method to regulate the supply of a token.
A coin burn happens when tokens are deliberately sent to an address where they can’t be spent. This is because nobody has access to the private key associated with the address – the tokens are therefore removed from circulation and the token’s supply is effectively lowered. The coin burn address is known publicly so that everyone can verify that the tokens have indeed been burned.
In theory, coin burning should reward holders and positively impact the value of a token because it increases scarcity. Binance, for example, uses 20% of its quarterly profits to buy back their BNB tokens from the open market and burns them with the goal of eventually reducing the supply by half (from the initial 200 million to 100 million).
Coin burning can also become a self-fulfilling prophecy, as traders sometimes rush in to buy a currency when a coin burn is expected to happen soon. Many BNB traders, for example, keep a close eye on Binance’s coin burn schedule as it can serve as an indicator for the behaviour of BNB’s price.
Here's Binance CEO Changpeng Zhao explaining and demonstrating a BNB coin burn: