Burning cryptocurrencies is the process of permanently and deliberately deleting or erasing a digital currency from the circulating supply, which can be done by developers or the cryptocurrency community. Once a cryptocurrency is burned, it cannot be recovered. This is similar to stock buybacks in traditional finance.
Cryptocurrencies are burned by sending them to a "burn address" where no one holds the private keys of the wallet associated with that address. Once the cryptocurrency is transferred to this address, it is effectively removed from the circulating supply as it has become an inaccessible currency. This can be compared to an email address that receives emails only but cannot send emails because no one has the password to access the email and send emails.
Anyone in the cryptocurrency community can burn a cryptocurrency simply by sending it to the burn address. Additionally, project developers can create smart contracts pre-programmed with certain criteria that specify how much of the cryptocurrency will be bought back from the circulating supply in the market to be burned. Typically, the burning process is primarily carried out by project developers and not by the community.
For example:
The London Fork on the Ethereum blockchain introduced a burning mechanism for the gas fees paid by users. Essentially, the base fees paid for transactions on the Ethereum blockchain are automatically sent to the burn address.
Why do we resort to burning cryptocurrencies?
In short, cryptocurrencies are burned to control the circulating supply of the digital currency. Since there is no sufficient reason for the digital community to burn their cryptocurrencies, as no one obviously wants to lose their money. On the contrary, project developers have an incentive to burn their currency for the benefit of their investors; because the burning process reduces the circulating supply of the currency, which increases the value of the investor's holdings if demand remains the same or increases. Furthermore, by promising a burning protocol, developers excite investors to hold the currency long-term, which in turn helps developers gain long-term support to build their project.
