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maximum, circulating and total supply explained
What role does cryptocurrency supply play in determining the value and scarcity of digital assets?
A key aspect of most cryptocurrencies is their unique offering mechanism, which differs widely from fiat currencies.
Unlike fiat currencies issued by governments and central banks, which can be printed at will, many cryptocurrencies are often designed with a fixed token supply schedule. This means that the total number of coins or tokens that will ever exist is predetermined and cannot be changed once the cryptocurrency is launched.
As a general rule, cryptocurrencies are decentralized and often have pre-determined issuance rules.
These rules determine the total amount of a cryptocurrency that will ever be created (maximum supply), the amount currently in circulation (cryptocurrency circulating supply), and the total amount in existence (total supply).
These parameters play a crucial role in determining a cryptocurrency’s scarcity, inflation rate, and ultimately its value.
Let’s delve deeper into these concepts and explore what they mean, how they differ, and why they are important.
What is cryptocurrency bidding?
Cryptocurrency supply refers to the total number of coins or tokens that will ever be created for a specific cryptocurrency.
What is the maximum bid in cryptocurrency?
The maximum supply of a coin or token refers to the total number of coins that can be minted or mined, including burned or unmined coins.
For example, Bitcoin (Bitcoin), the first and best-known cryptocurrency, has a maximum supply limited to 21 million coins. This scarcity is one of the key characteristics that give Bitcoin its value, as it is designed to mimic the scarcity of precious metals like gold.
Dogecoin (DOGE), another popular cryptocurrency that started as a joke based on the “Doge” meme, has an interesting approach to maximum token supply.
Unlike Bitcoin, Dogecoin does not have a maximum supply cap. Instead, it started with an initial supply limit of 100 billion coins, but this limit was removed in 2014, making Dogecoin an inflationary cryptocurrency with an ever-increasing supply of crypto tokens. As of May 6, DOGE has a supply of over 144 billion tokens.
Dogecoin Circulating Supply | Source: Messari
Another example is Ethereum (ET), the second largest cryptocurrency in market capitalization. Ethereum has a maximum supply that is not limited, meaning that new Ethereum tokens can be created indefinitely.
What is the total supply of cryptocurrency?
The total supply includes all tokens or coins that have been created for a cryptocurrency. This includes coins that are actively circulating as well as those that are not.
Uncirculated coins may be reserved for specific purposes such as staking rewards or held under lock and key or maturation periods after a private sale or ICO. These tokens technically exist on the blockchain but are not actively traded or available in wallets.
For example, a project might initially create more tokens than it distributes to the public, reserving some for future use. These additional tokens could be used for various purposes, such as incentivizing network participants or funding ongoing development.
The total offering also includes coins that have been burned or destroyed. Burning coins involves sending them to an address for which no one has the private key, effectively removing them from circulation permanently.
This can be done as part of a coin burn event, where a portion of the total supply is intentionally destroyed to reduce the overall supply of crypto tokens and potentially increase the value of the remaining coins.
What is the circulating supply in cryptocurrency?
Circulating supply refers to the number of coins or tokens currently available and circulating in the cryptocurrency market. This figure may differ from the total supply, as not all coins may be actively traded or accessible.
For example, if a cryptocurrency has a total supply of 100 million coins but only 50 million are in circulation, its circulating supply of cryptocurrencies would be 50 million.
Bitcoin circulating supply | Source: Glassnode
Circulating supply plays a key role in determining a cryptocurrency’s market capitalization, which is calculated by multiplying the coin’s current price by its circulating supply.
High circulating supply coupled with low demand can lead to price depreciation, while low circulating supply can create scarcity and drive up prices.
Total bid versus maximum bid
What is the difference between maximum bid and total bid? The maximum supply is the total number of tokens that will ever be created or minted for a specific cryptocurrency, including all coins that have been, will be, or could be created, issued, burned, or lost.
The total supply excludes any tokens burned and represents the actual amount of cryptocurrency available.
For mineable cryptocurrencies, once the maximum supply is reached, no more coins or tokens will be generated. This feature contributes to the cryptocurrency’s perceived scarcity and value.
It is important to note that while Bitcoin has a fixed maximum supply, most cryptocurrencies do not. Many cryptocurrencies have a maximum supply that can change over time, increasing or decreasing, based on the protocol’s rules.
Current supply vs. token offering
Now, let’s explore the difference between circulating supply and total supply. Total supply represents the maximum number of coins or tokens that will ever exist for a cryptocurrency, while circulating supply refers to coins that are already in circulation and available for trading.
The circulating supply excludes coins locked away or held in reserve, focusing only on coins that are actively in the hands of the public.
The calculation of market capitalization, a key metric for investors, typically considers only circulating supply. This is because the market prices of a cryptocurrency are primarily influenced by coins that are actively traded, rather than those that are locked or reserved.
As a result, circulating supply provides a more accurate reflection of a cryptocurrency’s current market conditions and liquidity.