The predetermined total number of a cryptocurrency that will ever exist, enforced by the protocol's rules.
Maximum Supply refers to the predetermined total number of a cryptocurrency that will ever exist. This limit is set at the time of the cryptocurrency's creation and is a part of its underlying code. For many cryptocurrencies, this cap is enforced through the protocol rules and cannot be changed without a network-wide agreement (hard fork). Maximum supply is a core concept in cryptocurrency economics and plays a crucial role in determining a coin's long-term value proposition.
"Bitcoin and Bitcoin Cash both have a maximum supply of 21 million coins, meaning there will never be more than 21 million of either coin in existence. This hard cap is encoded in the protocol and enforced by all validating nodes."
For mineable cryptocurrencies, the maximum supply is particularly relevant. As new coins are mined, the total supply increases, but it can never exceed the maximum supply. Over time, the rate of new coins being mined decreases, a process known as halving, until all of the coins are created. This controlled issuance creates scarcity and an inflation schedule that is transparent and predictable, unlike traditional fiat currencies that can be created at will by central authorities.
"The maximum supply of Bitcoin Cash is expected to be reached around the year 2140, as the rewards for mining decrease through periodic halvings. The block subsidy started at 50 BCH per block in 2009, halved to 25 BCH in 2012, 12.5 BCH in 2016, and 6.25 BCH in 2020. By around 2140, virtually all 21 million BCH will have been distributed."
Understanding the maximum supply of a cryptocurrency is crucial for investment decisions. It can influence the potential scarcity of the cryptocurrency, which can in turn affect its price and value. Cryptocurrencies with a fixed maximum supply are often positioned as "digital gold" or stores of value that resist inflation. The predictable issuance schedule allows investors to calculate the exact inflation rate at any given time and make informed decisions based on the changing ratio of new supply to existing supply.
"A cryptocurrency like Bitcoin Cash with a low maximum supply of 21 million might become increasingly scarce as adoption increases, potentially leading to price appreciation if demand outpaces the rate of new supply. This scarcity model contrasts with fiat currencies, which typically have no maximum supply limit."
Different cryptocurrencies have different maximum supplies. This can be a factor to consider when comparing cryptocurrencies, as it can influence their long-term supply and demand dynamics. Some cryptocurrencies like Bitcoin and Bitcoin Cash have a fixed cap, while others like Ethereum have moved away from a hard maximum supply in favor of other monetary policies. These differences reflect various economic philosophies and use cases.
"While Bitcoin Cash has a maximum supply of 21 million coins, some other cryptocurrencies have much larger caps - Litecoin has 84 million, Ripple has 100 billion. Others like Dogecoin have no maximum supply at all, creating different economic characteristics and value propositions."
Maximum supply is a key component of a cryptocurrency's tokenomics – the economic model that determines how the token functions within its ecosystem. Beyond just setting a cap, the distribution method of this supply matters significantly. Some cryptocurrencies have a large portion of their maximum supply pre-mined or allocated to founders and early investors, while others like Bitcoin Cash follow a more gradual issuance through mining. These distribution methods can affect decentralization, fairness, and long-term value.
"Bitcoin Cash, like Bitcoin, has a fair distribution model where new coins are only created through mining. Unlike some newer cryptocurrencies that allocate large percentages of their maximum supply to founders or investors, BCH's gradual issuance through mining rewards helps ensure broader distribution over time."
All terms and definitions may update as the Cryptionary improves.