Maximum Supply

What Is Maximum Supply?

The maximum supply of a cryptocurrency coin or token controls its rate of supply inflation, which can influence its value over time. It differs from total circulating supply and total supply, so it’s important for users and investors to understand the difference.

Maximum supply is defined as the total number of cryptocurrency coins or tokens that will ever be mined, or created. It is the maximum number of units that can ever be in circulation, and once the maximum supply is reached, no new units will be mined or issued.

This can be coded into the protocol from the genesis (first) block on the blockchain, in which case it is only changed if the developers decide to do so in the future.

The concept is one of the key features of cryptocurrencies that sets them apart from traditional fiat currencies, as a country’s central bank can print more currency at any time.

Setting a consistent issuance rate and limiting the supply of a coin or token creates scarcity that can control inflation, supporting the value of a cryptocurrency and influencing its potential uses

Maximum Supply vs. Total and Circulating Supply

Maximum supply differs from total supply, which refers to all coins or tokens that have already been issued, minus any that have been burned or destroyed to remove them from circulation.

Total supply and maximum supply both include coins and tokens that are locked and held in reserve, whereas circulating supply refers only to those that are in circulation on the public market.

Types of Maximum Supply

• Fixed supply: The most common type in which supply is capped at a set number that will never be increased or decreased.Bitcoin, for instance, has a fixed maximum supply of 21 million coins, after which no more will be mined. This has contributed to the perception among investors that bitcoin acts as “digital gold” as it can retain its value over time.
• Inflationary supply. Maximum supply can increase over time as new coins or tokens are issued, and none are destroyed. The rate of supply increase is typically governed by the blockchain protocol so that the creation of new coins or tokens is controlled.Ethereum (ETH) was launched with no maximum supply, but with the transition to Ethereum 2.0 has introduced changes to its supply model, such as coin burning. Some utility tokens do not have a maximum supply based on the number of tokens, but issuance can be limited by the number of users.
• Deflationary supply. Supply is designed to decline over time to limit inflation and increase scarcity. For instance, Binance carries out quarterly BNB coin burning to reduce its supply.
• Dynamic supply. Supply changes in line with predetermined parameters, which can include inflation and demand. This aims to make the cryptocurrency more flexible and responsive to market conditions.

The Bottom Line

Maximum supply is a fundamental concept in the cryptocurrency markets, influencing the value, scarcity, and economic dynamics of each coin or token.

Whether fixed or inflationary, the supply model of a cryptocurrency shapes its perception and potential use cases.

Understanding a cryptocurrency’s supply dynamics is key for investors, developers, and enthusiasts.