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I don't quite understand what it really means to burn tokens. Since the blockchain is immutable, there should be no way to delete the record. Thus, in my understanding, to burn the token merely means to send it to the address without the private key or the address that has lost its private key.

However, token issuers claim that the value of a token goes up because they burn tokens.

Are they actually burning tokens in any way or am I right that there is no way to delete tokens?

3 Answers 3

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You are partially correct. You could ether send tokens to an address with an unknown private key, or you could just delete them, if a function like that was implemented when the contract was created. ERC20 tokens sometimes include a .burn() function which literally decreases the number of tokens in circulation by lowering the number of tokens a specific address (most often the reserve-address of the developers) owns.

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  • Yes thanks, there's that too. I was only talking about burning when no burning mechanism was implemented. But if there's a burn function, of course it's different. Feb 22, 2018 at 17:49
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You are right, burning token means sending them to an address that you are sure no one can have the private key. This is ensured with addresses with special string called vanities. For instance an address 0x000000000000000000000000000000000000dEaD for which it's absolutely impossible to generate a private key with today's computers.

So the rest of your question is about financial implications, but it means that when you reduce the supply of a good, you make it's value raise. Burning tokens then make the remaining ones very valuable.

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    Isn't there as much chance of generating the private key for that address as there is for any other address? As in, it's not provably impossible, just very unlikely? I could make one, single attempt to generate its private key, and just happen to strike it lucky :-) Feb 22, 2018 at 17:25
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    @RichardHorrocks yes there's a chance. But it's very unlikely. I don't have the math of that but it's something like a chance on more than the number of atoms in the universe. This is what all cryptography is about. There's no absolute crypto, but a very huge work would be necessary to find a pk for an address. So for now, as quantum computing is not ready to solve the problems, you can be confident in the fact that a so small chance of collisions that it's safe. But people are working on new algorithms every day's and are seeking for stronger cryptography. Feb 22, 2018 at 17:46
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    You can actually see the transaction histories of those addresses. "This address is commonly used by projects to burn tokens (reducing total supply)." etherscan.io/address/0x000000000000000000000000000000000000dead "This address is not owned by any user, is often associated with token burn & mint/genesis events and used as a generic null address" etherscan.io/address/0x0000000000000000000000000000000000000000
    – qwr
    Jan 10 at 22:54
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Burning a token means removing it from circulation, which reduces the number of coins in use. This mechanism is used to bootstrap a new currency or introduce scarcity, which results in the increased value of the coin.

Token burn can be done in two ways:

1- manually send it to an unowned Ethereum address which is called "eater" or "burner" address.

2- Or more efficiently, create a contract that is incapable of spending it.

In either approach the burned tokens are unusable. Also, the decrease in circulating supply would not be “known” by the token contract.

Sometimes tokens accidentally get burnt. To prevent users from sending transactions to the wrong address, checksumming addresses and registering contracts are created

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  • Is creating a contract actually more efficient? doesn't a contract use more complex EVM operations?
    – qwr
    Jan 10 at 22:56
  • @qwr efficiently means, you can add some logic. for example burn the contract whenl it reaches certain amount
    – Yilmaz
    Jan 10 at 23:04

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