Token burning is the process by which digital currency miners and developers can remove tokens or coins from circulation, thereby slowing down inflation rates or reducing the total circulating supply of coins, according to the Motley Fool.
How is this accomplished? In the digital currency world, it is difficult if not impossible to control the flow of tokens once they have been mined. To remove tokens from circulation, miners and developers acquire those tokens and then send them to specialized addresses that have unobtainable private keys. Without access to a private key, no one can access these tokens to use them for transactions. Thus, the coins become unusable and relegated to a space outside of the circulating supply.
What are the advantages of burning tokens?
If asset burning is a common practice, what, apart from correcting an error or removing tokens from circulation, are the benefits of this? To start with, token burning is a deflationary mechanism usually meant to affect the token price. Just as with the Bitcoin Halving, it comes down to the laws of supply and demand.
Burning tokens, like halving, is restricting the supply. If the demand stays the same or increases, the price will naturally go up.
Token burning can be extremely beneficial for holders and projects alike to reduce inflation. As a result, it can potentially increase the price of the token in the market.