Introduction

Hello friends, it nice joining us here in this community. It's been a while since I participated with us here but I must say I'm glad to join all of us in this week's engagement challenge. I will be making my own contribution based on my understanding of the topic, "Token Burn". Let's get started guys...

_{Designed in Canva}

I will be using of my favorite tokens for this illustration which is the Binance utility token in the exchange (BNB). The activities of BNB burn started when it was still domiciled in the Ethereum network before its launch into the Binance Chain. The essence of bringing this intro is to let us know that, it is the same coin but with different behavioral burn functions. Notwithstanding, all of its ERC 20 token supports the burn function nevertheless.

The current burn function inherent in the Binance blockchain now takes part in the Binance Smart chain and is not in the Ethereum network anymore. All BNB ERC 20 tokes have been successfully migrated and swapped to the Binance chain and BNB BEP-2 token. when the Binance main net was launched, the over 11 million BNB already burned in the Ethereum network was also replicated on the Binance chain to balance the total su[ply of both platforms. The Burn function of the Ethereum network is presently replaced by a command in the Binance chain. However, as of the last quarter of 2021, 33,199,679 BNB has undergone burn with a value worth of $2,220,707,902 which represents 16.59%.

_{Binance Exchange news}

---

What is a token burn?

---

An implied meaning and understanding of the term token burn is the act of permanent depletion of cryptocurrency coins from circulation. It is a methodology used to alter the forces between the demand and supply function of this cryptocurrency coin. Let us remember that as soon as a burn function is successfully executed, the Total Supply of this token is reduced which in turn hampers excess supply in circulation. As we know, "Ceteris paribus", when demand outweighs supply, price tends to go up and vice versa.

Therefore, the strategy of permanently removing the excess supply of cryptocurrency tokens from the trade or circulation through a function is called the Burn function. This is a marketing strategy that is adopted by the team and developers while designing the token white paper. It is a tool that helps check the overbearing price loss of a token. For the BNB token, Binance performs a periodic burn event on its coin. The target is to completely remove 50% of the original token value issued in trade which is 200,000,000 BNB. Therefore 100,000,000 BNB are set to be permanently removed from circulation through its Burn events.

Binance has consistently kept to this policy drive every quarter to attain its goal of getting rid of this 50% token value. The value of BNB to undergo Burn quarterly is determined by the trading volume that occurs within this period under review. The overall trading volume of all BNB token activities in the exchange is a primary determinant of the BNB quantity set aside for Burn.

---

How Does it work?

---

Just as the way we have executed the #burnsteem25, this also takes a similar view on how burn happens. It solely depends on the system's smart function which executes this task when given. For a cryptocurrency holder to burn tokens, a certain amount of this token is sent to a wallet address designed for this purpose without private keys and can't be accessed for any purpose. This recipient smart contract permanently removes the token from circulation.
But these are some of the background details we have to bear in mind:

• The Burn function has to be activated by the cryptocurrency holder to show the intent of this activity
• The burn function which is the system smart contract would help verify the cryptocurrency holder's wallet as well as the validity of coins therein.
• Only positively valued coins are allowed to be burned. Negative values (0, -1, -2, ... etc) are not executed by the smart contract (burn function).
• When there is sufficient value, this is subtracted from the wallet and permanently removed from the cryptocurrency holder's custody.

Just as expressly discussed for BNB, Binance has this smart contract in the form of a burn function available to all of its users to burn tokens at will. And these transactions are also recorded in the blockchain for transparency and easy reference of the transaction activities carried out. All burn activities of the BNB ERC 20 token can be found in the Etherscan. Most importantly, Binance adopts two ways while carrying out its token burn. This is basically through the following mechanism:

• through a certain percentage of BNB spent from the blockchain as gas fees
• through the quarterly/periodic token burn

0x000000000000000000000000000000000000dEaD
From the BSC scan, this is displayed address for the burn.

---

The Benefits of Token Burning

---

The essence of developers embarking on a token burn can be seen majorly in two perspectives;

• To Maintain Token Value

This is one of the primary reasons why developers use this policy strategy in the cryptocurrency space. This utilizes the principle of demand and supply in maintaining the value of a token. In this case where tokens are removed permanently from their initial circulating supply, invariably means that supply is been reduced to allow for more demand and hence increase value or price.

• Investor/Investment Friendly

This is another strategy that boosts the confidence of investors and hence investment in the blockchain. Investors who observe such a policy with the token potential to increase in value would want to drive more investment in the platform.

---

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

---

Why blockchain burns its token may not be unconnected to the fact that there's a need to maintain value at all times. This may be done either periodically or daily. This act of Burn has helped in checking deflationary trends of tokens and as well maintaining a higher demand pressure than the higher supply pressure. This means a higher value for the given token if demand is seen to be greater than the supply pressure.

Every developer wants the best of their token. Hence this may bring attraction and more investment to this blockchain. Investors are eager to invest in viable projects and hence this would bring in the willingness needed to drive the project further if there is an influx of more/new investors. This puts in more money into the hands of cryptocurrency holders in the blockchain due to the added token value.

The BNB Token Burn
My knowledge about burn was through the steemit academy and this was I made an assignment on BNB token burn. This is an activity that was observed to occur quarterly where the BNB chain triggers its burn function and a certain agreed amount of BNB tokens are burned with deep consideration of the volume traded in the exchange. Let's remember that 20% of the profit from its entire earnings within the review period is used to buy back the BNB token used for the burn.

However, this methodology of buying back tokens after profit-taking every quarter has been tagged a long-term burn activity whereas the use of the daily Auto-Burn command button is for the short-term burn activity in the platform. Sometime in December 2021, the quarterly burn was now replaced with the use of the Auto-Burn. For the chain, this is observed to bring greater transparency and predictability of the process to all stakeholders.

This BNB Auto burn mechanism determines the amount of BNB burned using a formula that put into consideration the Price of BNB as of the time of burn activity, Number of blocks generated under the same review period. With this new Auto burn function which also represents a real-time burn function, approximately 860 BNB are burned daily. This is presumed to continue to burn BNB tokens even after the 100million BNB target.

Formular for this Auto Burn Calculation:
B = N x 1000 /(P+K)

B - BNB Amount
N - Number of Blocks produced (Quarterly)
P - BNB Price
K - Constant Value (set at 1000)

This entire process has been seen to improve the BNB token as it continues to evolve the utility token in the chain. The BNB value has continued to grow over the years as it undergoes burn activity.

---

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 is a newly developed project in the steemit platform where authors are expected to sacrifice a percentage of their rewards. This is in agreement with the steemit team which made reference to the @null address or user address created for purposes of this nature. The @null account or wallet address does not have any private keys which makes the token sent to it permanently removed from circulation.

_{Steem Blockchain Null address}

Therefore authors who set 25% of their rewards to @null for purposes of engaging in the burnsteem25 are in agreement with this campaign of permanently losing 25% of your earnings for this drive. This also comes with an incentive from the steemit team who rewards authors accordingly.

THE IMPACT
Definitely yes. The drive to make users indulge in burnsteem25 would not only have to continually remove excess supply in circulation but also drive pricing and value in the mid-term. The only limitation is not having a collective implementation ideology in this activity whereby some heavy earners in some communities are not indulging. I have no doubt that reducing the amount of steem in circulation would drive more demand pressure than supply pressure and hence, an upward increase in token value.

However, this act of salvaging the loss of token value may not be sustainable given the fact that the steem token has an unlimited maximum supply in the trade. When there is more steem supply into circulation which definitely counters the burnsteem25 drive, this would have little or no impact in the long term. Moreso, this can only be varied given to the developer's policy white papers in the steem blockchain inflationary rate module where an annual 0.5% decrease is observed to occur. This is another strategy in place to help reduce the amount of minted steem in circulation but this is expected to have an effect when more percentages have been depleted from the initial 9.5%.

Therefore, the scarcity of the steem token due to the inflationary rate module as well as burnsteem25 would definitely have an impact on the steem value positively. My thoughts are that any exercise geared towards the removal of the steem token from circulation just as observed for the burnsteem25 would either have a short-term, medium-term, or long-term impact. For the Burnsteem25, there would definitely be a medium-term effect if fully obliged.

Conclusion
Token burn has been seen to be adopted by most developers now in the cryptocurrency space since the proliferation of decentralized finance (DeFi). The primary essence of this activity anchors on the principle of demand and supply which is triggered by shrinking the supply excesses in circulation. No doubts that the impact would always turn out to be positive given the high demand pressure of token. Burnsteem25 is also positioned to drive this philosophy if there is overwhelming participation of ideology by the author/users.

Thank you for reading through...
Written by @xkool24

I am inviting @tenguhantaga, @kinkyamiee and @starrchris