Crypto Emission Rate

What is a Crypto Emission Rate?

Contrary to what you might expect, crypto emissions do not refer to the greenhouse gas (GHG) emissions associated with the creation and operation of blockchain networks that power cryptocurrencies.

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The meaning of the term crypto emission rate, also known as the emission curve or emission schedule, instead refers to the pace at which new coins are created and introduced into circulation.

Emission rates are determined by the consensus mechanism protocol written into the software the blockchain uses.

The Role of Consensus Mechanisms

The two main types of consensus mechanisms are proof of work (PoW) and proof of stake (PoS), which determine how new coins are issued.

Proof of Work (PoW)

In PoW-based cryptocurrencies like Bitcoin, miners compete to solve complex mathematical puzzles to earn the right to validate transactions and add them as new blocks to the blockchain. In return, they are rewarded with a certain number of newly created coins. This establishes a controlled emission rate for these cryptocurrencies.

For instance, Bitcoin runs on a PoW consensus mechanism that adds a new block every 10 minutes. When the blockchain launched, miners received a reward of 50 BTC for each block, meaning that the emission rate was 7,200 per day.

As the Bitcoin blockchain is programmed to halve the reward every four years, it has been 6.25 BTC since May 2020, and the emission rate has fallen to 900 per day. Bitcoin’s emission rate will drop to zero when it reaches its supply cap of 21 million and the last coin is mined in 2140.

Proof of Stake (PoS)

In PoS-based cryptocurrencies, new coins are not created through mining. Instead, validators are selected to verify transactions and create new blocks based on the amount of coins they stake or lock to the blockchain as collateral. The emission rate is typically based on the amount of cryptocurrency the validators stake.

Stablecoins

Some cryptocurrencies do not have fixed emission rates, as additional coins are created as needed. For instance, the Tether stablecoin creates a new coin for each $1 placed in reserve.

The Bottom Line

Different cryptocurrencies have different emission rates depending on the design of their consensus mechanisms. Some cryptocurrencies, like Bitcoin, have a capped supply and an emission rate that declines over time with halving events. Others, especially those using PoS, have more consistent emission rates.

Understanding the crypto emission rate is key for investors looking to assess the potential long-term value and scarcity of a cryptocurrency.

Cryptocurrencies with decreasing emission rates, such as Bitcoin, may be more attractive to investors who value scarcity and the potential for deflationary supply to support prices.

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Nicole Willing

Nicole is a professional journalist with 20 years of experience in writing and editing. Her expertise spans both the tech and financial industries. She has developed expertise in covering commodity, equity, and cryptocurrency markets, as well as the latest trends across the technology sector, from semiconductors to electric vehicles. She holds a degree in Journalism from City University, London. Having embraced the digital nomad lifestyle, she can usually be found on the beach brushing sand out of her keyboard in between snorkeling trips.