Token burning is a process whereby a certain number of cryptocurrency tokens is permanently removed from circulation by sending them to a special dead blockchain address, thereby making them irretrievable. Technically, tokens are sent to an address where no one has a private key, making them forever inaccessible.
The main purpose of burning tokens is to reduce the total supply of cryptocurrency on the open market, which theoretically should lead to an increase in the value of the remaining tokens in circulation. This works according to the principle of deflationary economics: the fewer tokens available on the market, the higher their potential value with unchanged or growing demand.
Tokens can be burned in different ways: for example, projects can burn part of transaction fees, execute regular burning of a certain percentage of tokens according to a pre-established schedule, or destroy a portion of tokens as a one-off event to achieve certain economic goals.
This mechanism is also often used to ensure transparency and trust in a crypto project. When the team publicly burns tokens, it demonstrates their commitment to the long-term development of the project and their willingness to sacrifice short-term profit for the sake of ecosystem stability. In addition, burning can be part of the project, helping to control inflation and maintain a healthy balance between supply and demand.