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Hello everyone

Greetings to you all in this community as the Steemit Engagement Challenge Season 5 week 4 brought me here and this is my entry for the theme of this week's contest from this community.

Without further ado, let's get to the business of the day.

USE YOUR OWN WORDS TO DETERMINE WHAT IS TOKEN BURN. AND EXPLAIN HOW IT WORKS (IF POSSIBLE ADD AN ILLUSTRATION FOR IT)

To understand the concept of Token burn, let's see the literal meaning of burning something, according to the MacMillan Dictionary to burn something is to " To damage or destroy something with fire". This tells us that when you burn something, you destroy it. Therefore,

Token burning is the process by which users destroy tokens (also called coins) and remove them from circulation, thus, reducing the number of coins in use. This is to say that the tokens that have undergone Token burn are removed entirely from the all-around supply of the asset, they, therefore, become useless and can never enter circulation again by any means.

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A Token is said to be "burnt" when the token is sent to a "eater" or "burner" wallet address that can only receive coins. These tokens sent to this eater or burner wallet addresses cannot be used for transactions, nor the to anymore, thereby making them useless to the blockchain. An example of such an eater wallet address is @null used in the Steem Blockchain.

The idea behind this burning process is backed by the basic Economics 101 Law of Demand and Supply which states that "If the demand is more than the supply, the price increases.". The idea behind burning tokens is therefore to curtail the number of Tokens in circulation, to increase demand.

A practical example is central banks adjusting the amount of currency in circulation to adjust the purchasing power of that currency. This is behind the idea that if something is rare, it will be appreciated more.

Another practical example includes Publicly traded companies buying back their stocks, which in turn reduces the number of shares in circulation in the idea to increase the value of the shares which in turn helps increase the company's finance as the few shares in the stock market, the more the demand, the higher the price per share. But, bear in mind this doesn't always work as planned.

It is based on this idea that the cryptocurrency ecosystem adopts the idea of burning their tokens with the expectation that it increases the price of their tokens which brought about the Proof-of-Burn consensus mechanism to ensure that all partaking nodes agree to the valid state of the blockchain network to avoid the likelihood of double-spending any Token.

Token burning solely banks on the network's smart function which enforces this task when given. For a user to burn tokens, the token to be burnt is sent to an eater or burner address. An address without private keys, that can not be accessed by anyone for any purpose.

This smart contract removes these Tokens permanently from circulation. All this is done via a process of the following steps;

• The Burn function must be activated by the Token holder to give the motive of this activity

• The burn function being a system smart contract helps verify the holder's wallet address as well as the validity of the Tokens therein.

• After the contract verifies the addresses, the Token is deducted from the wallet and permanently removed from the holder's custody.

THE BENEFITS OF TOKEN BURNING

The significance of developers and users undertaking a token burn can be related in the following ways.

This is the primary explanation for why developers and users utilize this ideology in the cryptocurrency ecosystem. As earlier stated this process utilizes the principle of demand and supply of economics to maintain the value of a token. The hope is that when tokens are removed permanently from their tokens circulation, the price is maintained due to more or stable demand.

Another plus is that Token burning would boost the morale of investors and therefore increase their investment in the blockchain. Since Token burning is expected to increase the value of the Token, investors would want to make more investments in the Token.

WHY DOES THE BLOCKCHAIN BURN ITS TOKENS? STUDY THE CASE OF A BLOCKCHAIN THAT BURNED ITS TOKENS BY IDENTIFYING THE RESULTS OBTAINED

For far, I would say the reason why Blockchains burn their tokens is the need to strengthen the value of their Tokens. This act of Burn helps maintain higher demand pressure as the supply in circulation is reduced, thus, the higher the demand pressure, the higher the value.

Some examples of Tokens to have undergone Token burn includes;

• Luna
• Bitcoin Cash
• Stellar
• Shiba Inu

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Last year, Luna underwent a Token burn that is believed to be the biggest token burn to date. As 88.7 million LUNA worth approximately $4.5 billion were burned following a vote by the community. A few days after the token burn, the LUNA token was able to hit a new record high in value moving from $50 to $54.77.

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Shiba Inu is another cryptocurrency to have experienced a token burn lately, which came as a surprise to holders too as it wasn't an expected feat. The project's developers gave half of the SHIB supply to the Ethereum creator who went on to donate 10% and burn the remaining 90% amounting to about $61,329,300 worth of SHIB being burned which lead to about a 9% increase in value a few days later.

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?

The #burnsteem25 project is relatively new in the steemit platform that encourages authors/content creators to burn 25% per cent of their author rewards using the @null address mentioned earlier. As earlier stated, for tokens to be burnt, an agreement has to be in place, thus burnsteem is in agreement with the Steemit team with authors/content creators or users to use the @null address in other to burn, thereby encouraging users to set 25% beneficiary of their rewards to the @null wallet address as an Eater address. Thereby permanently removing them from circulation.

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So far, it is the hope that Steem tokens burnt to achieve similar results. As this reduces the number of Steem tokens in supply, with the hope that it makes the tokens more valuable as it becomes a more scarce commodity.

Therefore, it is also important to know that burning cryptocurrency tokens may not always increase the value of that specific cryptocurrency if demand is not forthcoming. The action can only influence investors' and users' sentiment which is hoped to have more of an effect of propelling prices up and down.

CONCLUSION

The token-burning mechanisms have been seen to be accepted by most developers in recent times. The main idea of this activity is based on the simple economic principle of demand and supply. Some of these tokens have benefited from burning a percentage of their supply, hopefully, Steem will benefit positively from Burnsteem.

THANK YOU!

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I like to invite @fredquantum, @Ruthjoe and @patjewell, and any other persons who would like to participate too to CLICK HERE for more instructions.

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All Images shared were screenshots from the various sources with their links

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NOTE: Always have a smile on your face, as you are never fully dressed without one.