How was gunpowder used to extablish proof of alcohol?

Gunpowder was mixed with the beverage in question. If it ignited, it was considered "proof" that the beverage had a sufficiently high alcohol content.

To show that their moonshine has high alcohol content and is also free of potentially deadly contaminants commonly found in the illegal product, moonshiners sometimes pour some of theirs on a stump and light it. A clear blue flame indicates high proof. Any other colors within the flame indicates that it is contaminated. Why do people buy unpleasant tasting and potentially deadly moonshine? Because legally produced distilled spirits products are very heavily taxed, thus dramatically increasing their cost to the consumer