Hello and welcome to my blog. Accept my greetings in week 4 of season 5. Today I choose to write a task for the cryptoacademy community which is about Token Burn.

Use your own words to determine what is a token burn. and explain how it works (if possible add an illustration for it).

Token Burn is a process that involves the deliberate transfer of tokens to a dead address so that the transferred tokens are removed from circulation and thereby deducted from the available supply of tokens. Let me simplify it further.

We know that crypto tokens are stored in wallets. Those wallets have a public key and a private key Public key or address can be shared with anyone to receive coins whereas the private key is used to transfer tokens to someone else and therefore it has to be confidential. The wallets that are used in the token burning process have only public addresses and therefore can only receive the tokens. As they don't have the private key, transfer of tokens out of these wallets is not possible. So the tokens sent to these wallets are said to have been burned and these wallets are known as dead wallets and the public key or address of these wallets is known as eater or burner or null address.

The basic idea behind the burning process is to reduce the supply of tokens and therefore maintain or increase the value of tokens. It is by the law of supply and demand. According to the law of supply and demand, when supply increases value decreases and when demand increases value increases and vice versa. Let me give a real-life example to explain the concept of supply and demand.

Suppose there are three buyers of any item X in a market. If the available supply of X in the market is more than three ( say 10), a seller will get an opportunity to bargain and find the lowest price. On the contrary, if there are only 2 pieces of X in the market, but we have 3 buyers. There will be competition in the market and out of 3 buyers those two will get their orders fullfilled who will give the highest bid. So in this case supply is less but demand is more. It is that increase in demand that has increased the price of X wheresa in the former case, it was the increase in supply that devalued X.

As token burning decreases the supply of the token,, therefore, the value of the token is either maintained or increases.

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Working of Token Burn

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There are some simple ways through which token burning can be carried out. Let's explore them.

Investors who wish to carry out token burn can do so manually. If you have some coins and you transfer a portion of them to a dead wallet, then in the crypto world it is said that you have burned those tokens as they are permanently locked in that wallet.

In crytosphere, there are some other ways to burn tokens other than manual transfer to a dead or null address. Some cryptocurrencies just seek users' consent to select the number of tokens to be burned and they automatically deduct the selected amount from the user's wallet. An example of such a mechanism of burning is the Binance coin.

Some networks do not involve investors's'funds in the burning process but they carry out the process of burning while the minting of tokens takes place. They burn some specific portion of tokens from the transaction fee generated on the networks. An example of such burning is that of Ethereum.

List the benefits of token burning with a detailed explanation of each.

We know that token burning is a renowned process in the crypto world. As cited in the example above, we learnt that some famous and well establish networks like Binance and Etherium are burning tokens. So there must be some logic and advantages behind this process. Some of the proposed benefits of this process are :

Increase Value of token

Having explained above that token burning reduces circulating supply and decrease in supply as per the law of supply and demand increases the value of the token.we have seen that large-scale investors often publicize the burning process through social media networks to spread awareness among the masses and thereby attract more users towards the cryptocurrencies. This would in turn increase the demand which would increase value.

Mining Rights

Certain networks follow the Proof of Burn (PoB) consensus algorithm to confer mining rights to those who burn the tokens in a significant amount. It's analogous to a virtual mining rig. Those who burn tokens are given the right to mine the blocks. It is not a one-time process but it is a continuous process to maintain the mining balance.

With the creation of a new token, the mining speed is reduced. If PoB is a one-time process then the miners who burn tokens earlier would have an advantage over those who wish to enter into mining later. So to maintain the balance, PoB networks need continuous burning to maintain the integrity of the network.

Community Strengthening

When we critically analyse the awareness of cryptocurrencies in our surroundings, we can see that only a handful of people know about cryptocurrencies. On the other hand, only a handful of people are those who don't use social media platforms. We have seen that large-scale investors make announcements and advertisements regarding cypto token-burning process which is beneficial for attracting more and more users from the community and therefore strengthening the crypto community by mass adoption. The other advantage accrued out of publicity on social media is that of increasing demand as has been discussed above.

Pioneer Burning
Pioneer Burning is a specific advantage of the Binance blockchain that utilized the proposed estimate of burned BNB tokens for reimbursing the lost funds to some of its investors in 2020. Token burning was not carried out for that quarter but the lost tokens were counted as being burned and the tokens that were supposed to be burned were distributed to those investors who lost tokens. The tokens were lost during wrapping and support of the token control project by Binance and some other reasons as well.

Why does the blockchain burn its tokens? Study the case of a blockchain that burned its tokens by identifying the results obtained.

Some well-established blockchains like Binance and Etherium burn their tokens to maintain supply-demand dynamics in favour of their token. As a result, the value of the token is maintained or increased over time.

Token Burning - BINANCE.

Binance is so committed to the process of token burning that they claim it will reduce the supply of BNB ( native token ) by half by burning the tokens. Earlier Binance used to carry out the process of token-burning quarterly through manual transfer of tokens to a dead address. Since 2021 they have decided to carry out Auto-burning of BNB as a deflationary mechanism

The quarterly burning process carried out earlier by Binance was based on the trading volume of BNB tokens on the Binance exchange. Since the adoption of the Auto-burn process, the criteria chosen to subject the BNB tokens to Auto-burning quarterly is based on BNB price and the number of blocks generated.

Binance has completed 20 burning events so far. The first burning was carried out in October 2017 and the 20th burning event was carried out in Jul 2022. The first Auto-burning was done in Jan 2022.

The total supply of BNB is 200 billion and Binance proposed to burn 100 billion coins. Binance is known to burn more than 250 BNB coins every day.

^{BEP 95 last week burning}
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^{Token burned per block}
It is interesting to mention here that, in 2021 BEP-95 (BEP stands for Binance Evaluation Protocol) was adopted to cope with and meet the anticipated pace of burning where the portion of the gas fee collected from each block on the Binance chain is subjected to burning.BEP-95 will continue burning even after the reduction of supply to half.

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In the screenshot above, the history of burning events, number of BNB burned and BNB price is shown. Although there are ups and downs in the price of BNB due to multiple other factors we can see that price of BNB has grown dramatically and multifold over the years. We cannot confer the credit of the price hike to burning solely but there are multiple other factors involved as well.

The burnsteem25 company that encourages burning 25% of your publishing revenue? Do you think it will help boost the value of steem currency in the medium term?

Burnsteem25 is an initiative that was proposed to encourage authors to set @null as an additional beneficiary for 25% of author rewards. @null is a dead steam Id without any private key. As discussed at the beginning of this topic above dead addresses permanently remove the tokens from circulation and reduce the total supply.

As for the impact of burn25 on the price of Steem is concerned, I am sceptic about its impact on the price of Steem. Undoubtedly it will reduce the supply of Steem but we know that the total supply of Steem is not limited. It would have been more effective if the total supply of Steem was limited. However, in long run, it may have some impact when the process of Steem generation will be slowed down. Moreover the price of cryprocurrencies is not determine by a single factor.

Conclusion

Token burn is a process in place in crypto networks wherein tokens are sent to a dead address so that they are Irretrievable and therefore reduced from total circulation. Token burn reduces total supply and therefore increases the value of tokens.