Introduction
I am much excited to be a part of professor @wahyunahrul's class for the very first time. This week's lesson has been on Token Redenomination where prof has explained to us what it is and what importance it provides.
I would now present my work to the task given.
Token Redenomination And What Distinguishes It From Currency Or Other Assets Redenomination.
A token is a cryptocurrency that represents assets on a blockchain that can be traded. Tokens are created by blockchain creators or projects to track the progress of the blockchain. When the value of tokens become too high, not everyone can afford them and so something needs to be done. However the increment in the value of tokens means that the platform is doing very well.
The solution blockchains provide to the significant increase in value of these tokens to make it cheaper for "poorer" or "small" investors to invest in. This solution is termed as token redenomination.
Token redenomination simply can be explained as a process done by token project organizers to reduce the price of the token so that the "smaller" or "poorer" investors can purchase these tokens. Aside making the value of the tokens lesser for everyone, token redenomination is done to decrease inflation and increase the asset's liquidity in the cryptocurrency market.
In terms of inflation, when the value of these tokens go very high, it means that the platform is progressing very well and that also means that it becomes too expensive to purchase or invest and results in market inflation. Token redenomination us therefore done to reduce price inflation.
In terms of liquidity, again when the prices go too high the liquidity of the tokens decreases as there's a reduced number of investors. Because cryptocurrencies are not controlled by financial institutions or authorities, liquidity is needed to carry out transactions on the blockchain's platforms.
But liquidity increases when the number of investors decrease so to make sure there's enough liquidity for transactions, it is necessary to token redenominate.
Token holders of the old currency that have hit high levels only need to swap their tokens for the new ones.
How fiat redenomination differs from cryptocurrency redenomination is that cryptocurrency doesn't need approval from financial authorities and government where as fiat currency redenomination needs approval from government.
Fiat or local currencies are also redenominated by government. Just like a time comes when the value of cryptocurrencies get too high, fiat currencies can also become too high at certain times. When the value of fiat currencies get too high there's inflation and the citizens are unable to purchase items because everything goes high. To make things easier for citizens the government do fiat redenomination so that the value of the fiat reduce in value and everyone can use it to buy and sell items.
An example of fiat redenomination is the redenomination of Rupiah Currency by the government of Indonesia to reduce the value of Rupiah.
An example of token redenomination is that of NPXS for PUNDI X tokens.
Advantages And Disadvantages Of Token Redenomination.
Advantages of Token Redenomination.
The first and most important advantage of token redenomination is that the tokens become cheaper for everyone to purchase. When the tokens become redenominated, they become cheaper and affordable for most investors.
The second importance of token redenomination is increase in asset liquidity. Like already said when the value of tokens go too high, liquidity reduces and because liquidity is needed to carry out transactions, token redenomination is done to increase liquidity.
Another importance of token redenomination is progress of the blockchain project or platform. When a token us redenominated it simply means that the blockchain platform has outperformed expectations and new features or additions need to be made to make it even more appealing.
Token redenomination improves market value and increase transaction rate of tokens. When the value of an asset is very high, very few people purchase the coin and so trading of the asset is not high. This results in reduced market value. But when token is redenominated, it pulls more investors which results in an increase in asset market value and an increased transaction rate.
Disadvantages of Token Redenomination.
Transaction fees is the very big disadvantage of token redenomination. As most of us are aware, fees are charged when trading cryptocurrencies and this is no different when converting your old tokens to the new ones. Some platforms take advantage of this situation to raise fees for transactions which becomes inconvenient for some token holders.
Token redenomination can result into loss of investors. When tokens get redenominated their names get changed and investors unaware of this change cannot find this token to purchase.
Token redenomination can result into loss of token holders. Some token holders unaware of this change and others even aware of this change aren't happy with the change and so no not really trust this change. This makes them trade their tokens for different ones.
Inconvenience to investors in terms of transactions. During the process of the token redenomination, all transactions are halted and so if your transaction wasn't executed before that time, you would have to wait till the redenomination is done to start a new one because your transaction gets cancelled.
Do All Cryptocurrency Projects Need To Do Token Redenomination?,
There is no doubt that token redenomination comes with a lot of advantages with the noble ones being an increase in asset liquidity and investors of smaller investors but also a sign that the project is performing well. However, nothing is perfect and rightly so it has disadvantages which I have discussed.
So looking at both these 2 although the advantages slightly overweigh the disadvantages for me, my answer to the question is No, not all cryptocurrencies need to do token redenomination.
Token redenomination signals progress of the blockchain project but it should be noted that if investors really value your project, they will invest in it no matter how high the value is. There are a lot of assets in the market with high market prices but haven't token redenominated. Notable ones are Bitcoin and Ethereum with market ranks of 1 and 2 respectively. Investors trust these projects so much that they have invested a lot of money into them. They know that their assets are safe and do not risk losing it to scams.
Investors also know that although the prices are high, there are certain times it falls due to its volatility which is good because when it rises again, they make profits.
Also, BTC and ETH have various levels or units in its evaluation that are very cheap. Because of this I can own NTC for as low as a $1.
So instead of token redenomination, projects should concentrate on building good reputation on the market so that even when the prices increases significantly investors see that as a good sign and still wish to invest.
Also, there are a lot of other cheap tokens on the market that investors with low funds can invest in.
For the reasons above, I do not think it is necessary for every token to be redenominated.
The NPXS Token Redenomination And How To Convert It Tokens To New Tokens, PUNDI X.
There are a number of tokens undergoing token redenomination but for this task, I would show how to swap the tokens of NPXS for PUNDI X tokens.
The NPXS token started it's token redenomination on March 30th 2021 to PUNDI X token. NPXS is a token based on the Ethereum blockchain.
Pundi X is a project that aims to make the use of crypto as easy as using a credit card. The team of Pundi X are working on a card which will work with the mobile app of Pundi X hence allowing payments with the use of the card.
To convert or swap NPXS tokens for PUNDI X tokens, these steps are followed;
- Launch the official website of Pundi X
- Click on Swap Now next to NPXS is now PUNDIX.
- A new page is launched.
- You're required to connect to wallet. At the right hand side of the page, click on Metamask.
- Unlock metamask.
- Click in next.
- Click on connect.
- Wallet is connected.
- Next, you enter the amount of NPXS you want to Swap. The amount you will receive is displayed as well at the rate, 1000 NPXS = 1 PUNDIX. Gas fees are required to Swap tokens.
- Because I have no balance I cannot proceed but if I had ETH and NPXS tokens, the next step will simply be to confirm the transaction on metamask by paying the gas fees.
Analyzing The PUNDI X Token
PUNDI X is a good token to invest in my opinion. PUNDI X was created to help all investors to be able to acquire it because it aims to be used in our daily lives. It is Ethereum based and has a great potential of going up. Just like other cryptocurrencies it is volatile.
PUNDI X tokens have been developed to be used as easy and widely just like credit cards for payments of good and services.
Pundi X is currently valued at $1.27 on coinmarketcap as at the time of performing this task. It has a market cap of $329,271,049 , a fully diluted market cap of $329,315,636 and a 24hr volume of $28,658,274.
Pundi X has a market rank of #235 and a market dominance of 0.02% meaning currently it's fluctuations cannot affect the trend of the other coins.
The daily graph of Pundi X shown in the screenshot below shows that it is currently in an uptrend and it is possible that the price of Pundi X would grow significantly in some months or years. It's current price being just above $1 means a lot of people can invest in it at the moment. Although it is rising you can still invest with the hope that it would rise higher than that.
Conclusion.
I must say a big thank you to professor at @wahyunahrul for this very informative lecture.
Token Redenomination is the method of making tokens cheaper for a lot more people to purchase when tokens of a blockchain become too high. It usually results into a new name if the token. An example is NPXS changed to PUNDI X token. Token redenomination usually means a blockchain project has outperformed expectations.
Token redenomination can be bad as it can lead to loss of investors. It not necessary that all tokens undergo token redenomination because there are other cheaper coins investors can invest in and other coins like BTC that haven't been redenominated is performing so well.
However token redenomination is a very good step taken by blockchains to improve the project and as well make it accessible to everyone.
Thank you.