The processing of permanently removing cryptocurrency coins from circulation is referred to as ‘burning’ coins.
The way that they are removed is by means of a consensus-based transaction whereby the allotted coins are transferred to a wallet address that is specifically allocated for the sole purpose of those coins alone being transferred to it. These coins are voluntarily sent by the coins’ current owners to the burner wallet address from their own wallet. Once within the allotted wallet, the coins will be stored there forever and can never be restored to circulation again. For this reason, they are known as ‘burner’ addresses or wallets. They are also sometimes called ‘eater’ wallets since they ‘consume’ the coins.
A consensus mechanism is a type of protocol that is utilized by many validation nodes to verify a transaction on the blockchain. The most common consensus mechanism used to verify the burn transaction is called a Proof of Burn (POB) mechanism. There are also alternative consensus mechanisms that could be utilized. The main purpose of burning coins is to decrease the overall supply of coins or tokens in the cryptocurrency market in the hopes of increasing their individual value. Another reason is to ensure balance and fairness of coin distribution so that the majority of coins will not be owned by whales, as is the case with the early adopters of Bitcoin (BTC), where Satoshi Nakamoto, the creator of the Bitcoin blockchain, is thought to have mined the first million BTC before opening access to others.