What is Total Supply
Total supply is a fundamental concept in the cryptocurrency ecosystem that refers to the total amount of coins or tokens that will ever exist for a particular cryptocurrency. This metric is crucial for investors and users as it helps establish the potential scarcity and inflation of a digital asset. Total supply can include coins that are already mined, coins that will be mined in the future, and coins that are held by the project team, investors, or locked in smart contracts.
The origin of the total supply concept comes from traditional economics, where the supply of currency impacts its value. In the cryptocurrency space, total supply impacts market dynamics and investor sentiment. For instance, Bitcoin has a fixed total supply of 21 million coins, which contributes to its scarcity and is a central feature of its value proposition compared to fiat currencies that can be printed in unlimited quantities.
What are the types of Total Supply?
There are several variations of total supply metrics that can be observed in cryptocurrencies, including:
Max Supply: This is the maximum number of coins that will ever be created. For example, Bitcoin has a max supply of 21 million.
Circulating Supply: This represents the number of coins that are currently available for trading in the market. For instance, as of October 2023, the circulating supply of Ethereum is approximately 120 million coins.
Inflationary Supply: Some cryptocurrencies, such as Dogecoin, do not have a maximum supply and can be created indefinitely, leading to an inflationary model.
How does Total Supply work?
Total supply is determined at the inception of a cryptocurrency through its underlying code and consensus mechanism. For cryptocurrencies with a capped supply, such as Bitcoin, the total supply is mathematically programmed into the protocol, dictating how many coins can be mined over time. This is often achieved through mechanisms like halving, where the reward for mining new blocks is reduced periodically, ultimately reaching the max supply limit.
In contrast, cryptocurrencies with an inflationary model do not have a fixed total supply, allowing for continuous creation of new coins. In these cases, the issuance rate may be designed to decrease over time or remain constant, depending on the project's monetary policy. Understanding total supply helps investors assess the long-term viability and potential price movements of a cryptocurrency.
Where is Total Supply used?
Example 1: Bitcoin (BTC) has a total supply of 21 million coins, with approximately 19 million already mined as of October 2023, leading to a circulating supply of about 18.8 million.
Example 2: Ethereum (ETH) has no maximum supply, but as of October 2023, its circulating supply stands at around 120 million coins, with an annual inflation rate of approximately 0.5%.
Example 3: Cardano (ADA) has a total supply of 45 billion coins, with a current circulating supply of about 35 billion, reflecting a significant portion of the total supply already in the market.
