Binance Coin (BNB) will be burned after each transaction. Why is this important?

October 28, 2021 by cryptobreak

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The developers of the Binance Smart Chain (BSC) blockchain are preparing a major upgrade to the project’s network – the Binance Evolution Protocol (BEP-95) coin-burning mechanism. The upgrade is expected to make the network more decentralised and significantly accelerate the pace of native Binance Coin (BNB) token burning. Binance Smart Chain itself was launched last year, and the network had a positive impact on the growth of BNB and the entire ecosystem of the exchange as a whole, as it was necessary to pay in BNB in order to conduct transactions there. And now there is another reason to develop the coin.

It is important to note that BNB goes through a burn procedure as it is. Essentially, it is about sending coins to an address that no one else has access to, which means that the cryptocurrencies sent there do fall out of circulation.

This is handled by the Binance exchange, which buys back a certain portion of the coins and burns them once a quarter. The last time its representatives did this was in mid-October – then 1,335,888 BNB, that is the equivalent of $639,462,868, were destroyed. Overall, the history of coin burnings by the exchange looks like this.

History of BNB token burning by the Binance exchange

The logic is to remove coins from circulation, thereby increasing the value of the remaining cryptocurrency on the network. This practice is popular for trading platforms that have their own token. For example, the FTX exchange with its FTT token and the WOO X platform with its WOO coin are doing exactly the same thing.

Soon the BNB burn will only stop happening once a quarter.

What will happen to the BNB cryptocurrency

After the upgrade, BNB will be burned in every transaction of the network. The tokens will be destroyed even after the target supply of burned BNB of 100 million coins is reached. Here are more details about BEP-95, as published by Cryptoslate.

The point of BEP-95 is to speed up the BNB burning process and make BSC more decentralised. The BEP-95 mechanism depends solely on activity in the BSC network, and it will continue to work, reducing the BNB supply, even after the planned BNB burning on Binance reaches the target supply of 100 million BNB.

Binance Chain

It should be noted that excessive centralisation is considered a major problem with the Binance Smart Chain network, as it is almost impossible to become a validator in it and validate transactions. This has been highlighted by Messari analysts, among others. Their position is described in a separate article.

As we have already noted, the exchange now conducts a quarterly burning of BNB and reported on this event. At the time of writing, Binance has held 17 such coin-burning sessions, destroying more than 32 million BNB in total. The record here was the fourteenth session, at which time 3.61 million BNB were burned.

Binance founder Changpen Zhao

The supply reduction strategy has the obvious initiative of Binance’s management to remain a competitive project against the backdrop of Etherium, which also had a burn mechanism in August. And while Ether is still an inflationary asset, meaning miners typically mine more ETH than is burned in each transaction, in the next blockchain upgrades the developers plan to move towards permanently reducing the amount of ETH in circulation.

Note that transaction fees are burned in the Avalanche blockchain as well. And this feature was there even before the Etherium update.

We updated the data: yesterday was the first truly deflationary day for Etherium. That is, the amount of ETH burned as commissions exceeded not only the reward for blocks in PoW mining, as it already happened in September, but also the reward for staking in the Beacon Chain network. As a reminder, this is a separate network that projects a vector for the future development of blockchain, with Etherium itself moving fully to Proof-of-Stake tentatively in the third quarter of 2022.

The situation is visible in the chart below. Red here denotes the amount of ETH burned as commissions. Blue denotes ethers created as a blockchain reward for current mining on video cards, and green denotes the reward for stacking in the current PoS branch of the blockchain. It was yesterday that the red figure beat the sum of the other two for the first time.

Inflation on the Etherium network

We believe there is logic in such a decision. Even though the mechanism will essentially replicate the new feature of Etherium, it will still have a good impact on BNB. After all, the cryptocurrency will be more actively burned and withdrawn from circulation, and this traditionally has a good effect on the remaining cryptocurrencies in circulation. There is a possibility that more and more projects will follow this trend.

What do you think about it? Share your opinion in our Millionaire Crypto Chat. There we will discuss other important developments in the world of blockchain and decentralization that are affecting coin rates.