Token Redenomination - Crypto Academy / S4W3 - Homework Post for @wahyunahrul by khamara

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· @khamara · (edited)
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Token Redenomination - Crypto Academy / S4W3 - Homework Post for @wahyunahrul
<div class="text-justify">

![20210926_101132_0000.png](https://cdn.steemitimages.com/DQmSrKDPQYJbakU4KWMkac2GGRoAZLbCJfnaRZ27CSaM86Y/20210926_101132_0000.png)


## INTRODUCTION

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

In this week's lecture by professor @wahyunahrul, he taught us about Token redenomination, and currency simplification; when it is needed and the advantages. I answer the assignment questions below:

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

### 1). Explain what is Token Redenomination in your personal opinion? What distinguishes it from currency or other assets redenominations?

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

![image.png](https://cdn.steemitimages.com/DQmVt1vPQZFU35VdSkdFy6HXxnytJq7JH4smsrrnTsrYejf/image.png)
<sup>[Source:](https://theconversation.com/what-is-a-blockchain-token-98916)</sup>

A Token, in the world of cryptocurrency, is a cryptocurrency that is built on a blockchain, but is not the native cryptocurrency of the blockchain, rather it is owned, and used, by, and for, projects or DApps which employ smart contracts, created, and run by different developers from those of the original blockchain. 

A token's value, in terms of price, is inherently tied to the success or failure of the project to which it belongs. If the token's project is successful and moving forward, then the token will garner a lot of interest from the masses, and gain more investors and users of the project. Because of this increased interest, and increased demand for the token, it appreciate in value. However, if the project which the token is tied to fails to meet up with its promises, or fails in any way, then the token will be cast aside/sold off/dumped by investors and reduce in value.

Some projects end up becoming very successful, or receive a lot of hype from investors and *shillers* and as such may appreciate in value very quickly, and the price of the token becomes very high, or due to volatility in the crypto market and a relatively small supply of the token, the price may be pushed up very high and because of this, this token becomes so high in price, that normal everyday small scale investors can no longer afford to purchase and invest in this token. 

This kind of situation, ironically, is actually not advantageous for the token and the token's project because it reduces the liquidity in the token market. This is when **Token redenomination** is required.

Token redenomination is the act of recalibrating a token and changing the value of the tokens already in circulation. The old token is then exchanged for the new one at a fixed rate. This redenomination is done by the developers to try and simplify the price of the token, in order to make it much more affordable for smaller scale investors and the general public. 

Some of the differences between cryptocurrency token redenomination and fiat currency redenomination include: 
1. Fiat currency redenomination is usually done due to the high price of goods i.e. hyper-inflation, leading to the devaluation of the currency. Redenomination is usually done in these situations to try to stabilize the economy and revamp the value of the fiat currency. However, in cryptocurrencies, redenomination is usually done due to inflation in the price of the token itself, hence making it too expensive for small scale investors to purchase.

2. In cryptocurrency token redenomination, due to the decentralized nature of cryptocurrencies, the developers of the project usually put forward a memo concerning the redenomination of the project token, and investors and holders of the token are requested to vote, in favor, or against the redenomination. However, with fiat currencies, the Central Bank is in charge of the currency redenomination, and can choose to do it whenever they feel that the currency has been devalued too much, or the economy is in need of it.

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

### 2). Mention the advantages and disadvantages of Token Redenomination

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

#### ADVANTAGES

Token redenomination has a lot of advantages for any cryptocurrency token and the corresponding project. Some of them include:

1. Liquidity creation: Redenominating a token usually makes that token more available to the public for investment purposes, at a more affordable rate, This increases the number of buyers and sellers in the market, hence increasing the liquidity of the token market. 

2. Volume and Transaction Rate Increase: Token redenomination also increases the volume of transactions carried out, as well as transaction rates, which are two key things that investors look for when investing in a project's token.

3. Increasing the Market Cap: Token redenomination can also increase the market capitalization of the token, and hence give it more value, as most times, investors value coins based on their market cap. 

4. Increased Project Activity & Funding: Due to the increase in holders of, and investors in, the project token, the project is able to generate more funds and more activity within the project to proceed with their project goals and development.

---

#### DISADVANTAGES

As with anything at all, Token redenomination is not all sunshine and daisies. There are always going to be disadvantages. Some of the disadvantages of token redenomination can include:

1. One of the major disadvantages of token redenomination may be the scare it would bring to investors who, for some reason or the other, are unaware of the ongoing token redenomination.

2. Another disadvantage of token redenomination is the transaction fees usually required by different swap platforms and DApps, to convert old tokens into the new ones. This may likely scare off some investors from acquiring more tokens and/or may hold them off/prevent them from converting the old tokens in two new ones, especially when the cost is high.

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

### 3). Do all cryptocurrency projects need to do Token Redenomination? Explain in your personal opinion

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

No, definitely not. 

Not every cryptocurrency will have to undergo token redenomination. This is because, from the onset, some cryptocurrencies already have enough digits within their unit valuation to accommodate small investors, as well as large ones.

A good example is Bitcoin which can be subdivided into smaller units called satoshis, which are one-eighth (1/8) of one Bitcoin. Another good example is Ether, where one can purchase one gwei, which is one-ninth (1/9) of one Ether. 

There are also many tokens which have a large enough supply when compared to demand, such that they do not require redenomination in the long run. 

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

### 4). Choose a project that has or is currently doing Token Redenomination and show how to convert old tokens into new tokens. (Screenshot Required)

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

For this part of the assignment, the project i have chosen is [POLKADOT](https://polkadot.network/)

![Screenshot 2021-09-25 191139.jpg](https://cdn.steemitimages.com/DQmWegefQT9njTKyMYNpqhn8vGcMKnjWQ5FQvG2Zu8NPh4k/Screenshot%202021-09-25%20191139.jpg)

> Polkadot is an open-source sharding multichain protocol that facilitates the cross-chain transfer of any data or asset types, not just tokens, thereby making a wide range of blockchains interoperable with each other.<sup>[1](https://coinmarketcap.com/currencies/polkadot-new/)</sup>

Polkadot initially started out with a maximum supply of 10 million tokens, however, in order to make calculation easier and to avoid the use of small decimals, the network's token underwent a redenomination on the 21st of August, 2020 at block #1,248,328.<sup>[2](https://coinmarketcap.com/currencies/polkadot-new/)</sup>

![image.png](https://cdn.steemitimages.com/DQmRXgwMA2W319ZUzeFnVqEfdNMgodUDwuRcM4yzw1E3Ary/image.png)
<sup>[Source:](https://btcmanager.com/polkadot-dot-redenominates-must-know/)</sup>

The DOT token was recalibrated by a factor of 1:100 i.e. the *New DOT* was 100x smaller than the *DOT (old)*. Therefore, every one DOT token became a hundred, and if the price of 1 DOT at the time was $500, it was reduced by 100, to become $5 to 1 DOT. This redenomination changed their max supply to from 10 million to 1 billion.

It is important to note that, although DOT is the currency unit of the polkadot network token. It is not the smallest unit of the currency. The smallest unit is known as a *Planck*. Before the redenomination, 1 DOT = 1e12 Plancks, however, after the redenomination, 1 DOT = 1e10 Plancks. 

This means that the number of Plancks that investors and holders of the DOT token had before the redenomination, remained constant and did not change after the redenomination. The only thing that changed was how many Plancks now equal the (more well known) unit DOT. This is a very important point because, usually in redenomination, the entire currency is re-evaluated, and recalibrated, but in the case of DOT, it was more of a cosmetic change, as all they changed was where the decimal point would be to equal one DOT.

To explain better: A DOT holder who had 5,000,000,000,000 Plancks before the redenomination, had only 5 DOT. After the redenomination however, the DOT holder now has, still the same 5,000,000,000,000 Plancks, but in the new denomination order, 500 DOT.

> There are no state changes with redenomination. There are no transfers. The real change regards the social consensus around where to put the decimal place when we talk about what constitutes a DOT.<sup>[3](https://coinmarketcap.com/currencies/polkadot-new/)</sup>

Due to the fact that there was no change to the number or value of Plancks, there was no need for a method to change New DOT to DOT(old), and the change was implemented automatically throughout the network, as well as on exchanges.

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

### 5). Analyze whether the token from the project you chose in question number 4 is worth investing in. (Screenshot Required)

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

![Screenshot 2021-09-25 191020.jpg](https://cdn.steemitimages.com/DQmZcQb6AMdwgdDgUneqoRrfRugMkCVaVV5FtQhv3xBDkGb/Screenshot%202021-09-25%20191020.jpg)

Polkadot is definitely a project to invest in. The project is a network created to facilitate data transfer between blockchains, and make blockchains inter-operable with one another. As we can see above, DOT token ranks #9 currently by market cap on CoinMarketCap.com with a market cap of $29,925,557,599 and a circulating supply of 987,579,314.96 DOT. 




![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

## CONCLUSION

![image.png](https://cdn.steemitimages.com/DQmaAa2Rfxurb2VLSyuhNscvv7FSFqHoM5yADuTegpinscW/image.png)

Token redenomination is an important and frequently used way to regulate cryptocurrency value and increase market liquidity of an asset. Thanks to Prof @wahyunahrul for the wonderful lecture.
</div>
👍  , , , , , , ,
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vote details (8)
@kwadjobonsu ·
Your cover image..this is a beginner's course...not intermediate. Fix it friend.
👍  
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@khamara ·
Thanks. I've fixed it
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@wahyunahrul ·
Hi @khamara, Thanks for taking my class.
Based on the homework that you have made, here are the details of the assessment you get:

Assessment Aspect | Score
------- | ------
*Token Redenomination Explanation* | *1/1*
*Pros and Cons of Token Redenomination* | *0.6/1*
*Explanation of whether all cryptocurrencies require redenomination* | *0.6/1*
*Explanation of how to redenomination a token* | *0.7/1.5*
*Analyze a token* | *0.2/1.5*
*Conclusion* | *0.1/1*
*Procedures and structure of writing* | *0.7/1*
*Follows Rules and Guidelines* | *1/1*
*Provides additional information/effort* | *0.3/1*
***Total*** | ***5.2/10***

**My Reviews and Suggestions:**

* You have completed the task.

* Overall, your explanation is still too general and shallow. I see the explanation has been explained by other friends. Try to provide more information for each given question.

* The data you show in the analysis of your chosen token is still too little, try adding other data.

* In question number 5, you have provided some data to analyze, but I don't see whether you recommend the token is good to invest or not.

* Your conclusion is too shallow. Not worth the explanation you have made.

* Re-learn **"Markdown Style Guide"** to improve your writing skills.

## Thank you!
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