When you buy through affiliate links in our content, we may earn a commission at no extra cost to you. Learn What Is a Hard Cap?
A hard cap is an absolute limit on a cryptocurrency’s maximum supply coded into the blockchain protocol. It prevents more coins or tokens from being issued once the maximum number is reached.
To change this limit, the cryptocurrency’s developers would have to alter the underlying code.
Techopedia Explains
A hard cap can create a sense of scarcity and support the value of a cryptocurrency over time if demand outpaces new supply.
For instance, bitcoin (BTC) is capped at 21 million coins, supporting the perception that it can be used as a digital store of value. The BTC price tends to rise each time there is a “halving” of the block reward for miners, as it reduces the number of new coins that are mined.
Some cryptocurrencies do not have a hard cap, creating an inflationary supply that can affect its long-term value if it is not controlled.
In an initial coin offering (ICO), a hard cap refers to a limit set by the project developers on the number of tokens that will be sold. This determines how much funding the development team can raise. Once the hard cap is reached, the ICO is sold out in that round.
The hard cap sets the maximum supply of tokens in an ICO, while a soft cap refers to the minimum amount of funding a project needs for its development.
The developers need to balance the cap between issuing enough tokens to raise funds and avoiding flooding the market with oversupply that will reduce the cryptocurrency’s value.
The Bottom Line
A hard cap on supply is one of several factors that can influence the value and adoption of a cryptocurrency.
Users and investors should evaluate other factors, such as the technology, use case, development team, market demand, and overall utility, before making any crypto investment decisions.
