Non-Fungible Tokens (NFTs) are stored on the blockchain, a distributed ledger that enables all users to verify the owners of a stored digital asset. Once an NFT is created, it cannot be destroyed and this is due to the distributed ledger structure of the blockchain. However, they can be “burned” by being sent to an invalid address. After an NFT burn, the token will remain on the blockchain, but no one will be able to use it. This effectively “destroys” the NFT and takes it out of circulation.
How to Burn an NFT
You can destroy and pull an NFT from circulation simply by burning it. It entails sending a token to an illiquid address that no one can access. As a result you cannot get an NFT back once you “burn” it. A true NFT burn address is a blockchain location to which no one has the private key, rendering them useless.
At first glance, it may seem difficult to burn NFT, but this is not the case thanks to NFT exchanges. You have to sign into the exchange where you purchased your NFT to burn it. Choose the NFT you want to burn, then go to the options menu and select the burn NFT (token) option. Find the burn function, supply your token Id, then hit “write contract” on your contract’s interface.
The token will be destroyed after you pay the required burn fee. Again, this is permanent, so think carefully before proceeding.
The following sequence usually occurs during a token burn:
- To burn a certain quantity of NFTs, a holder must activate the burn feature.
- The contract then verifies whether the user possesses the required number of tokens and the requisite gas fee.
- If the gas fee is more than the amount you have on hand, the transaction will fail and the NFT will not burn. If you have enough NFT in your wallet to cover the gas fee, you must approve the transaction by signing the accompanying contract before the NFT is permanently erased.
- When an NFT is burned, it is recorded on the blockchain as a public, permanent transaction that cannot be undone. This exchange is recorded in the blockchain, and the NFT is then considered to be unusable.
- Furthermore, in most marketplaces, transaction fees are used as a burning mechanism rather than going to a central authority or organization.
Fees for burning your non-fungible token often vary between $5 and $100. Since “burning” a token constitutes a transaction, you must pay a transaction charge (called the “gas fee”) whenever you choose to burn your NFT. The supply and demand on the blockchain determine the amount of this charge.
Why would I burn my NFT?
The idea behind burning started in the crypto community. A certain cryptocurrency can theoretically increase its value by sending a percentage of its holdings to an empty address. Burning automatically decreases the supply which increases the demand.
The NFT industry later adopted this idea for a variety of applications. Particularly to limit the total available quantity of an asset. To destroy an NFT is like locking bricks of gold up in a vault with no one knowing the combination. It’s already hard to get your hands on, but the blockchain makes it even harder.
When an NFT is destroyed, its value may increase since its supply is reduced, just like when cryptocurrency is destroyed. Many use this to increase the long term value of their collection if done properly.
An example of an NFT project that hasn’t had much luck using the NFT burn mechanism, is the WZRDS NFT. The creator gave token holders the option to vote to destroy WZRDS NFTs that fell below a specified price threshold. The only two options for holders who value the security of their WZRDS were staking and cold storage.
Therefore, more than 5,000 of the total ten thousand WZRDS have been staked, and over 1,000 have been burnt. The floor price reached a high of 3.2 ETH on July 12 after having started at 0.15 ETH on July 8. The increased floor price, however, quickly dropped after the morning and is now at a meager 0.02 ETH.
Find and fix flaws
Failures are common in NFT projects. Sometimes creators attempt to head off any potential pitfall in advance. Whatever the cause, project creators can use burning process to fix problems.
Not an NFT project, but Tether is responsible for one of the most infamous burns in history. The dollar-pegged stablecoin made a $5 billion mistake in 2019 by accidentally creating more stablecoins. As soon as they realized the problem, they destroyed the tokens. Tether solved its oversupply problem immediately simply by pulling the excess token from circulation.
Burn addresses are more commonly used in the cryptocurrency community to correct mistakes, but they are also the only means to resolve supply issues with NFTs.
Certain NFT projects have added a burn mechanism to encourage holders to decide between holding and exchanging their NFT for another asset of equal or higher value. Gary Vaynerchuk’s Book Games NFTs are a great illustration of this gamified approach. There were initially 125,000 tokens available in this entertaining and unique game. Currently, there are only 102,000 NFTs available.
The VeeFriends Series 2 new character allow list was the only way to mint any of the 15 new characters in Series 2. So along with the Book Games Exchange (a marketplace that allowed users to burn their BG NFT in exchange for another virtual/real-world asset) holders voluntarily burned their NFTs to obtain a different asset.
Companies in the NFT industry are increasingly turning to this kind of “gamified burn” strategy. Especially companies that sell tangible versions of their digital wares as a marketing strategy. It’s not just refreshingly novel, but it also helps limit production, boosts value, and keeps customers invested.
NFT projects can also establish trust and dependability through token burning. This is especially important in the nascent stages of an NFT’s lifespan. Some creators choose to burn unsold tokens following an offering to demonstrate better oversight and security to investors. Token burning can be an expensive process for owners, as they may be subject to rather hefty gas fees.
Expensive NFT Burns
Not an NFT project, but Binance, a major cryptocurrency exchange, and NFT marketplace has already destroyed about 4 million BNB tokens. At the time of the Binance token’s release, the company announced that it would burn 100 million BNB to cut supply and boost demand. There have been other large-scale crypto companies that have burned their cryptocurrency to restrict supply.
It may be surprising the amount of cryptocurrency that investors have lost to black hole addresses so far. People would be perplexed (and possibly angered) if a well-established NFT mint suddenly started destroying some of their NFTs. However, undestroyed NFTs would be worth more because of this simple act.
Here’s a bizarre example of how burning raised the value of an asset. Early last year, a crypto company reportedly purchased an original Banksy painting — and literally torched it. The idea behind it was that taking the original physical piece out of commission would make the NFT version of the asset worth more.
It worked. This painting originally purchased by Injective Protocol for about $95,000, was sold for $380,000 as an NFT.
Developers and shareholders alike stand to gain from NFT burning. In the vast majority of cases, burning NFTs helps boost NFTs’ value and mitigates the effects of a surge in supply. Investors are less likely to panic and sell their NFTs at low prices because of their innate stability, allowing the assets to grow in value.
You can rest assured that rumors of owners employing “burning tactics” to increase value have nothing to do with actual fire or smoke. Instead, it’s a method of reducing the total quantity of tokens in circulation across exchanges and the blockchain. The burn transaction is permanent and can be verified by anyone on the blockchain.