Steemit Crypto Academy Contest / S5W4 - Token Burn by @beckie96830
The crypto academy community wants participants to discuss and explain their understanding of Token Burn in Blockchains, I will be responding to the assignment given.
Question
Use your own words to determine what is token burn? and explain how it works (if possible add an illustration for it)?
Token Burn In Cryptocurrency
In economics, the valuation of a given asset is determined by the balance ratio between the demand and the supply of the asset at a given interval, these principles also apply to the crypto ecosystem. By this implication, excess demand for assets results in a continued hike in the price of the asset, while an excess supply of a given crypto asset results in continued price depreciation over time. In an attempt to curb the effect of the excess supply of a cryptocurrency, Token burning was introduced.
Token burning is a process of reducing the overall supply of a crypto asset by permanently removing a fraction of the crypto asset by sending it to an inaccessible wallet or a null address to be brunt. This phenomenon occurs periodically and is triggered voluntarily or during the transaction. Ideally, users of a crypto asset are advised to burn a fraction of their holding in an attempt to preserve the asset's value. But in some instances, like in that of Ethereum, the burning occurs during transactions, a percentage of ether is burned as part of the transaction fees paid.
The effect of token burning has been proven to be an effective method of supply control. It's important to note that while this only affects the supply, there are other factors that can contribute to affecting the valuation of an asset. For instance, crypto projects with bad solution models tend to lose value rapidly even with the adoption of a token burn approach.
How Token Burn Works
Tokens can be burned in different ways, it's up to the Blockchain and the project to decide on a better approach. I'll explain the different approaches below:
1) Null Addresses
Burning crypto assets through this method involve sending a fraction of the asset to a wallet address that has an invalid address usually specified by the Blockchain with a set of guided rules to follow in the process. This typically takes about the same time as a normal transaction, after the burn is completed, the overall supply is updated to reflect the deduction of the burnt tokens.
An example of this approach is used by Bitcoin. The Bitcoin address
1CounterpartyXXXXXXXXXXXXXXXUWLpVr is known to be a burn address, which has received over 2130.96766708 BTC and has sent or spent 0 BTC.
2) Burn Functions
Some Blockchain includes a burn function in their source code, and this periodically burns an amount of the listed tokens. Typically, users of the Blockchain specify the number of tokens they wish to burn and in some cases, they get rewarded for burning their asset. Some blockchain and crypto projects that use this method are Binance Smart chain (BSC), Shiba Inu, Terra, etc. An instance of this would be that of Shiba Inu in April of 2022. Shiba worked with Ryoshis Vision and created a burn portal that rewards users for burning their assets.
3) Burning Through Gas Fees
Some Projects adopt the automatic burn approach, which burns a fraction of the asset during transactions as part of the gas fee paid. An instance of this is seen on Ethereum. During the transaction, a fraction of Ether coin is burned as part of the gas fee paid for the transaction. This also applies to fees paid during mining. To explore this, the etherchain.org platform shows transactions and their burned Ether coin amounts.
Question
List the benefits of token burning with a detailed explanation of each.
Benefits of Burning Tokens
There are various benefits of burning tokens in the crypto ecosystem. Some of these benefits include:
1) Value Retention
The primary aim of burning tokens is to maintain the value of an asset through continued circulating supply reduction periodically. This greatly contributes to the tightened supply of the token which boosts the investor's confidence and overall valuation of the project and token. This follows the basics of demand and supply in economics, by the continued burning of crypto assets, a tightened supply will give rise to increase demand which in turn pushes the market price of the asset up.
2) Revitalizing Investor's Confidence
Burning tokens is also a way of reassuring investors of a safe return on their investment as the controlled supply implies that stable pricing and value are assured. While the open market factors contribute to the pricing of an asset, the investor's confidence in a project goes a long way to support and boost the efforts made by the developers.
3) Decentralized Mining
Burning of tokens helps Blockchain control the effect of an early miner. Ideally, the reward for being an early miner is higher when compared to later rewards. This can cause a good amount of Imbalance in staking systems, thus miners are advised to burn the previous token mined and to mine new ones.
Question
Why does the blockchain burn its tokens? Study the case of a blockchain that burned its tokens by identifying the results obtained.
Blockchain Token Burn
Blockchains burn their coins and tokens to maintain a tightened supply of the asset, which in turn increases the overall value of the asset over time.
A case study is that of Shiba Inu Burn. Shiba Inu collaborated with Ryoshis Vision to create a burn portal that has burned over $147k worth of Shiba Inu. The Shiba Inu burn portal rewards wallets that burn Shiba with the burntSHIB token. Users that stake the burntShiba can earn RYOSHI tokens as a reward by staking these tokens using the Woof mechanism. According to shibburn.com, about 43.7M SHIB tokens have been burned in the last 24 hours.
I believe the continued burning of Shiba Inu will rapidly prove the price of the asset and probably have the Shiba token trading at around the $0.01 mark in a couple of months or years. Though the recent burn has seen the overall pricing move from $0.000000000082 to $0.00008845 this is indeed a massive leap in its value.
Question
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
Burnsteem25 is an initiative proposed by @rosz about 5 months ago, which suggested that about 25% of the post reward should be allocated to the Steem Blockchain to burn. As per her post suggestions, the burn mechanism would be represented in the reward setting of a post with an option to add a receiving account and set the address to null. This will send 25% of the post payout to the null address and 75% share goes to the author of the post.
I believe the adoption of the burnsteem25 will moderately affect the pricing of steem in the medium term. Though steem Blockchain has adopted a different approach to solving this problem through the introduction of the clubs. Where users are instructed to stake either 50%, 75%, or 100% of their earnings on the steem Blockchain. This approach gives the individuals controlling rights to their assets.
Conclusion
Token burn is indeed a great way for projects and Blockchain to fight against inflation as it offers an avenue to limit the supply of crypto assets in circulation. An initiative like burnsteem25 and the club in steem Blockchain is a practical approach to solving the inflation problem.
Hi @beckie96830
It had been a long time since she had read an article of yours. I don't know if you still remember me, from Project Hope.
I loved the way you wrote your report, it was quite technical but easy to read and understand.
From the bottom of my heart, I congratulate you.
Precisely related to the burning of STEEM, I would like to invite you to take a look at the following post, which has some fresh ideas to promote STEEM. Maybe this interests you.
Please, allow me to take an opportunity to invite you to an interesting initiative aiming to PROMOTE STEEM blockchain: https://steemit.com/hive-175254/@crypto.piotr/help-steemit-grow-my-personal-suggestion-on-how-to-bring-more-demand-for-steem-join-discussion
Big thanks.
Your post has been supported by @simonnwigwe from team 2 of the Community Curation Program. We invite you to continue sharing quality content on the platform, and continue to enjoy support, and also a likely spot in our weekly top 7.
Voting date: 01/11/2022
Yes, just as illustrated, Value Retention and Revitalizing Investors' confidence are the key drivers of token burn initiatives. The introduction of burnsteem25 was timely for the blockchain especially now there is a deflationary effect on the token.
Thanks for sharing... Best of luck in your entry
That's very true, the purpose of the null accounts on the blockchains is to destroy the tokens that enters the address. Since the tokens are in the digital form and can not be burnt by fire, the null address is perfect way to do the burning because the accounts don't have a private key which means everything that enters there are off the market forever.
I also agree that token burn gives investors confidence over their investments and it also attracts more to get involved in the project. Good to read your post on the topic.
Yes as these wallets have only public address , only tokens can be transferred to them . As they don't have any private key , no transfer out transaction can be made .
Yes Etherium is a classical example. In addition there is BEP 95 mechanism of burning in Binance which burns a portion of BNB after creation of every block . There is also quarterly burn and auto burn mechanism in Binance as well.
Good luck
Good evening friend,
Yea you are right I also witnessed this when she submitted an entry for a Steem engagement contest and the team read and loved your ideas, and now it permitted on the steem blockains. The tag #burnsteem 25 was used so curators could easily reward author who participate such heroic act of settings rewards payout in the dead
Thank you very much for sharing, please you can check my own entry here
wishing you success
Greetings, from your description, your thoughts on token-burning are aimed at Value Retention and retaining Investors' confidence is 100% correct.
The introduction of the burnsteem25 project to the Steem blockchain came with the same intentions and was timely for the blockchain.
Thanks for sharing with us and Good luck.
Hello friend.
Your explaination about the token burning is really very impressive. You have presented the information in a very good way.
Yes, this is the main reason behind the burning of tokens of a blockchain. The developers and the users of a blockchain are totally benefited from the Token Burn.
You have expressed your ideas well. Thanks a lot for your precious post. I wish you a very good luck for the contest.