It’s no secret that the next century will be full of new inventions, as people always seek to simplify their existence and enhance their own safety. Frankly speaking, it’s the main reason why Hacken is going to create an ecosystem for white hat hackers in Q4 of 2017. Within this “environment”, IT companies  of various types and sized will be able to test any type of their software or web products.

The Ecosystem will contain a bug bounty program of the same name where services may be purchased by means of a token called “HKN”, a special cryptocurrency that will result from the Hacken’s token sale. It all starts at the end of October. The main feature of this custom-tailored decentralized token is concluded in our invention – the Burning Principle. However, it would be appropriate to note that along with being the reward within the bug bounty program, Burning Principle will also bring value to other parties involved like community members who bought HKNs (customers/businesses), as well as blockchain and cybersecurity communities.

How Did We Invent It?

In general, Money Burning signifies a literal and meaningful act of destroying money with an aim of reducing its amount in circulation, thereby, lowering its supply. In a Macroeconomy, it’s an approach used in monetary policy to cause deflation by shrinking the amount of cash in circulation.
In other words, thanks to the use of this technique, holders of a particular currency become wealthier because Money Burning increases a price of this currency. As a result, according to one of the main economic laws, the lower supply leads to a higher demand. In turn, Alex Tabarrock, a professor of economics, provides a clear explanation of how this approach works. His main argument is that by earning money, people create value for them, and when, for example, a person burns $100, he or she divides its value among other members participating in an economy.

On the other hand, a misemployment of Money Burning may cause a liquidity crisis since a lack of money in circulation would interfere an investor to sell a certain asset. Drawing on Tejvan Pettinger, the theoretical economic implications do not necessarily signify that lowering the supply of money may make an impact on the actual economic output or income levels. Nevertheless, in the case of an exceeding decrease in the money supply, the aggregate demand and overall economic growth of a country might be impaired. As a result, it will contribute to a shortage of money in circulation and may cause a liquidity crisis. You can read more about a harm of excessive fall in money supply here. The same applies with volatility, which directly correlates with liquidity.

But what are the negative effects of shrinking the money supply in virtual economies?

Along with possible threats of exceeding the decrease in supply in real economies, financial stability of the virtual systems is even more vulnerable to these negative effects. For instance, unlimited resources that can be mined in MMORPGs, such as World of Warcraft, endanger the value of money in their virtual economies since the more efforts players make to get resources, the more money they have.

This particular tendency encouraged CFO of Hacken, Dmitry Budorin, to invent the Hacken Burning principle to prevent possible liquidity and volatility crises. Dima’s Story (CFO of Hacken Ecosystem) — Howey Test and a Lucky Glass of Wine

“At the very beginning of the Hacken company, we conducted a brainstorming session to identify how to pass the Howey Test and not get under the regulation of the Securities and Exchange Commission. So, we were thinking about how to consolidate our cryptocurrency through a bounty program. But then, we realized that it’s extremely difficult in terms of the technical side. Consequently, we concluded that it’s almost impossible.
Undoubtedly, it was discouraging and frustrating for the first time, so I took a bottle of wine, lit up a cigarette, and settled in the living room. And then, it just clicked my mind. I suddenly realized that we must “burn”! I immediately opened Excel and started calculating, comparing and analyzing a mathematical effect of my idea through numbers. Eventually, I succeed. It worked properly.

To clarify, there’ll not be any additional emissions of HKNs because we know how to invite investments without the benefit of using an ICO. As soon as we burn 15% of the overall amount of the tokens, an effect may double the value of the cryptocurrency. In turn, in the mentality of an investor, there is an explicit desire to hold the asset as he or she is always interested in the future profit, not the current one. As soon as the Burning Principle comes into play, there will a fewer number of investors willing to sell it, while an amount of tokens will also be reduced. However, it won’t affect the cost of HKN. In the course of time, people who joined the community and purchased the tokens earlier will be able to purchase an increasing amount of services within the Hacken Ecosystem. Therefore, it’s a prepaid Cyber Security service which token holders who bought HKN during the presale or main sale will be able to resell to other members of community or newcomers”.

Who Will Benefit and Why?

Taking into consideration the research above, it’s evident that the Burning principle invented by the CFO of Hacken will enable investors to manage liquidity and volatility of the cryptocurrency. It means that the approach will reduce financial-related risk that can negatively affect the profitability of their portfolio while increasing its value for stakeholders.

But who will benefit from this and why?   

Community Members Who Bought Hackens (Customers/Businesses)

The reason is a permanently decreasing amount of coins will cause constant deflation, which will result in the capability to buy more services within the Hacken Ecosystem having the same amount of tokens. For example, if a common penetration testing costs 1000 HKNs when a full amount of HKNs circulating in the system is 20 millions, the same service will cost 500 HKNs when the system contains 10 million of coins in total. So, in the course of time, people who have not spent their HKNs will have higher purchasing power.

In addition, after burning the critical mass of HKN, the number of people willing to sell them will decrease exponentially. We expect this ‘critical mass’ to be within the 15—20% of the total amount of HKNs issued during the token sale. This will reward community members, who see themselves as long term investors.

Security Researchers

Furthermore, deflation will improve the accounts receivable, as well as reduce financial risks related to low liquidity and volatility of the cryptocurrency. The more coins burned, the higher demand for the remainder will be. Therefore, it will be easy for token earners to exchange their HKNs for any other crypto or real currency if needed. Besides, burning of the coins will lower transaction costs when hackers getting paid for their services.
Another benefit the absence of banking service fee, like the one for cross-border fiat money transfers. Exchanging HKN to BTC will get white hat hackers access to a whole range of low commission or commission-free local cash withdrawal options or over-the-counter local Bitcoin solutions.

Blockchain and Cybersecurity Communities

Undoubtedly, the burning principle and its influence on HKN price will enable an existence of the vibrant community based on transparent financial incentives. The system would regulate the trade relationships within the community, thereby, ingraining appropriate qualities and values to Hacken marketplace participants. Perhaps in the future, it will affect the overall blockchain community.   

In addition, the burning principle and entailed demand for HKN will foster cross-pollination of expertise between blockchain and cybersecurity professionals. Due to an active interaction among members of the community, professionals of different types will be able to share and exchange their knowledge and experience with each other. Consequently, it will ensure a constant enhancement of the cybersecurity standards around the globe.

Finally, the burning principle will contribute to the world’s Internet security by diverting bright talent away from cybercrime and unethical online businesses. To be more specific, by means of financial benefits of the coins caused by burning principle, Hacken will attract and employ well-qualified and skilled professionals to employ their knowledge in an appropriate and ethical manner instead of earning money illegally, thereby, endangering themselves. The reason is that within Hacken Ecosystem, hackers will always be able to sell their services in exchange for an indemand and financially attractive cryptocurrency, HKN.

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