A cryptocurrency’s maximum supply is the total variety of tokens that can ever be mined, and it’s often outlined when the genesis block is created.
Bitcoin’s maximum supply is capped at 21 million, and though something is feasible, its strict protocol and code are constructed in order that no extra BTC can ever be mined. Other cryptocurrencies do not need a maximum supply however might have a cap on the variety of new cash that may be minted with a selected cadence, like within the case of Ether.
Stablecoins, however, are inclined to maintain the maximum supply fixed always to keep away from a supply shock that would have an effect on and fluctuate the value an excessive amount of. Their stability is assured by collateral reserve belongings or algorithms created to manage supply by way of the burning course of.
Algorithmically-backed cash are designed to take care of a secure value, however they’ve drawbacks as they’re weak to de-pegging dangers. Also, non-algorithmic stablecoins like Tether might danger de-pegging, as occurred in June 2022, exhibiting that even cash that ought to present extra certainty could also be in danger.
The different two metrics — circulating and total supply — additionally have an effect on a token’s value, however to a lesser extent than the maximum supply. When a cryptocurrency hits maximum supply, no extra new cash can ever be created. When that occurs, two important outcomes are produced:
The cryptocurrency turns into extra scarce and in consequence, its value might enhance if demand exceeds supply; Miners must depend on charges to get rewards for his or her contributions.
In the case of Bitcoin, the total supply will get lower in half by way of a course of known as the halving, so it’s calculated that it’ll attain its maximum supply of 21 million cash within the yr 2140. Although Bitcoin’s issuance will increase over time by way of mining and is due to this fact inflationary, block rewards are lower in half each 4 years, making it a deflationary cryptocurrency.
