Token Redenomination - Crypto Academy / S4W3 - Homework Post for @wahyunahrul
INTRODUCTION
Redenomination is one of the effective ways monetary governing bodies of a country assist in dealing with inflation and also to lay down new developments. It entails the recalibration of the currency so that the new currency are circulated while the old currency holders exchange it for the new ones at a fixed rate.
The Hungary 1946 redenomination is a significant example. Pengo, the prior official currency was changed to Forint as a result of severe inflation breaking records ever witnessed. Citizens began to exchange pengo to the new currency, forit at the rate of 400 octillion to one.
Question 1
Explain what is Token Redenomination in your personal opinion? What distinguishes it from currency or other assets redenominations?
Token redenomination is the recalibration of a cryptocurrency token with a major aim of increasing the number of token available, increasing the number of investors, increasing market liquidity and improving the overall ecosystem of the project. Redenomination is not necessarily the issuance of new token or currency as with the SUNOLD and SUN token. A good example of this is the BTCST project, a binance smart chain token which initiated a redenomination of their token at a ratio of 1:10. This mean the number of BTCST of all holders and investors as at the time of the redenomination was multiplied by 10. For example, if Juan had 10 BTCST, he now has 100 BTCST, however, the value still remained constant.
This is a vital part of most redenomination, the quantity of the token alters, however, the value remains the same and so also is the market cap. So if Juan's 10 BTCST was worth $50 before the redenomination occurred, Juan's 100 BTCST after the redenomination still maintains the $50 value.
However, in some cases there is issuance of a new coin as seen in SUNOLD and NPXS. However, the concept of recalibration remains constant as 1,000 NPXS was exchanged for 1 PUNDIX tokens and 1 SUNOLD was exchanged for 1000 SUN.
What Differentiates Crypto Redenomination from other assets?
Inflation, adoption of new currency, crises and decimalization are the most obvious reasons for redenomination in the world. In the cryptocurrency space, redenomination serve relevant functions such as attracting new investors, boosting liquidity the crypto market as well as growing the project's ecosystem. Some of the most popular cryptocurrency redenomination are Polkadot redenomination (which occurred several time), the Sun redenomination and the BTCST redenomination.
Question 2
Mention the advantages and disadvantages of Token Redenomination
As much as the idea of redenomination seem all rosy, it has disadvantages attached to it. However in most cases, the advantages outweighs the disadvantages which causes the developers' team to continue with the process. Howbeit, the consequences is a responsibilities of both the token holders and the project. Below are the advantages and disadvantages of Token Redenomination:
ADVANTAGES
- Increase in Market Cap: Redenomination does automatically lead to an increase in the market cap, but it can attract more investors' interest in the project and acquisition of the token which then ultimately leads to an increase in the market cap.
- Simplification of token value: For example in the case of Bitcoin, redenomination will simplify handling the currency as a great percentage of crypto holder deal burdensome decimal numbers. As seen in the case of NPXS to PUNDIX, calculations become simplified.
DISADVANTAGES
- Transactional Mistakes Due to to Current Calibration: Holders of the token are prone to making quantity mistakes when transacting because they are yet to adapt to the new changes in token value quantity. They might transact excess or reduced quantity of the token in which in some cases can be disastrous.
- Suspicion Raising: Especially to many who are not learned, there is probability of raising suspicion in current and intending buyers of the token. They might begin to see the token as a scam which could have negative impact on the project, it adoption and popularity.
Question 3
Do all cryptocurrency projects need to do Token Redenomination? Explain in your personal opinion
Redenomination is done so as to increase the number of tokens while still maintaining its value. This is needed to invite more investors, especially ones not holding large portions of the token so as to maintain the circulating supply. And a not so common reason is the simplification of currency value to make it more concise.
Not all crypto asset has this issues that can be solved through token redenomination, hence my conclusion is that not all cryptocurrency projects requires token redenomination. Howbeit, a cryptocurrency project along the way as time passes by might require a denomination, this is a possibility. However, speaking in the present moment, some projects need denominations while others do not.
Question 4
Choose a project that has or is currently doing Token Redenomination and show how to convert old tokens into new tokens. (Screenshot Required)
For majority of the crypto project redenomination, there was not need to exchange the old token for the new token, the tokens were exchanged automatically. Except there is a need to implement new developments, then a new token will be created and a new smart contract address which will have the new development which is different from calibrating the token value.
A good example of token redenomination is BTCST which launched a proposal to denominate the currency. This proposal was published on their medium channel in the early hours of February this year 2021. The plan was to adjust the token issuance to 15 million, 150 million or 1.5 billion tokens while still maintaining overall value and market cap. The investors will have the amount of BTCST they have increased but still maintaining its original value. The reason given in the proposal for this change is as a result of the increasing market sentiment to participate in mining bitcoin with hashrate pledge which is causing BTCST to develop rapidly.
Members of the BTCST community were urged to vote through the snapshot site choosing between four options. These options labelled A to D entails:
A: The circulation changed from 1.5 million to 15 million
B: The circulation changed from 1.5 million to 150 million
C: The circulation changed from 1.5 million to 1.5 billion
D: Remain unchanged
The voting lasted for 66 hours between 2:00 am (SGT) on 22nd Feb, 2021 to 8:00 pm (SGT) on 24th Feb, 2021. The result was released later on the last day of voting with the majority voting for the first option of increasing the circulation to 15 million. This means the BTCST was to be increased by 1:10.
How to Exchange Old BTCST for New BTCST
As stated earlier, there was no real issuance of a different token or creation of new smart contract, however for the investors and holder of BTCST to have their BTCST calibrated (redenominated) to the new standard, there were certain procedures they were to abide by. This was stated in a guide released by the BTCST team through their medium channel.
Following this voting, the denomination was scheduled for 16:00 on March 17, 2021 (SGT) so users were urged not to deposit, withdrawal, trade, transfer or perform any other services involving BTCST until the team announced the successful completion of the denomination. If anyone was staking BTCST to mine BTC on their DApp, there was no need to unstake as redenomination will be effected at all level so the token becomes active automatically. And also, there was no cause for alarm for individuals having their token in other wallets and exchanges, the update will be effected all round.
After the team announced the redenomination completion, investors and holder were to confirm through a link (https://bscscan.com/address/0x78650b139471520656b9e7aa7a5e9276814a38e9#readProxyContract) that the field “16. decimals” displays a value of “17 uint8” as the intention of the denomination was to recalibrate the BTCST-BEP20 value from 18 (current value) to 17. After successfully confirming the changes, they could continue with their trading activities.
Question 5
Analyze whether the token from the project you chose in question number 5 is worth investing in. (Screenshot Required)
Image Source: Coin Market Cap
The bitcoin standard hashrate token (BTCST) is a token built on the Binance Smart Chain network and launched in December 13, 2020 with the aim of tokenizing the bitcoin mining hashrate. The aim is to stretch and extend the participation of Bitcoin mining to individuals who do not have sophisticated mining technology with each BTCST representing 0.1 TH/s of the total mining power of Bitcoin. Hence, holders of this token are rewarded with a daily distribution of mined Bitcoin. This project is not only beneficial to non-bitcoin miners but to bitcoin miners as well as they can now earn more for their mining activities aside the bitcoin rewarded for solving hashes.
The current market cap as at the time of writing this post is $114,253,352 with a 24 hour trading volume of $4,237,323. The total supply of the token is however 15 million max. The token is rated #351 on coingecko. The project is verified by certik, a security blockchain which helps investors be more assured that it is not a scam.
The token reached an all time high on the 15th of April, 2021 where 1 BTCST was exchanged for $91.94 and has ever since been in a bearish movement. Like every investment, there is risk involved, and this token might not be worth taking.
One of the reasons people invest in this token might be because its is the first ever token to leverage on the mining hashrate of bitcoin, and they believe it is bound to increase as the times go by to accommodate transactions, which in turn causes a demand for the token causing an increase in its value. However, predictions from AI cryptocurrency analyst are saying otherwise, and judging from the trends, it is best to label this coin as a hype coin. However, like markets do, they can be unpredictable. Any investment in this coin should be very minimal.
CONCLUSION
Redenomination of currencies is not a new concept, it has been used in time past to save currencies, sometimes its purpose was achieved and other times, it failed- even to extends of making matters worse. However, in my opinion, one of the currency that needs urgent redenomination is bitcoin because of the value each bitcoin carries. It is difficult to calculate smaller value with decimal token quantity. Hopefully, someday this might happen.
Thank you!