Learn what is the difference between the maximum, circulating, and total supply of crypto tokens here
Blockchain technology’s main innovation is that it offers a reliable, unchangeable, transparent record of all data and transactions. This record is most frequently used to track who owns what Bitcoin units. Understanding a cryptocurrency’s supply or how many coins circulate within an ecosystem is essential to calculate supply, demand, and market capitalization factors.
Knowing exactly how many coins are in circulation at any one time is one of the reasons that currencies like bitcoin (BTC), the native cryptocurrency of the Bitcoin network, have any value. However, if you delve a bit further, things become hazy. Understanding the differences between the three phrases is essential to comprehend the extent of a cryptocurrency’s economy. The circulating supply is not the same as the maximum or total supply.
The amount of a cryptocurrency floating through the market is known as its circulating supply. For instance, as of this writing, there are around 18.98 million BTC, 120 million ETH, and 81 billion USDT coins in circulation. Note that circulating supply only refers to the cryptocurrency now available on the blockchain and can be moved freely between wallets, not all of the units that you may purchase on a cryptocurrency exchange. For instance, Satoshi Nakamoto, who invented Bitcoin, has billions of dollars worth of digital currency under his control but hasn’t touched it in almost ten years. These Bitcoins are still regarded as part of the circulating supply of Bitcoin. This idea has led some experts to discount market capitalization, one of the most often cited indicators of the scale of a crypto economy. Even when many of those coins are missing, in the FBI’s custody, or belonging to the deceased, the market capitalization of a coin is a fairly basic multiplication of all the coins in circulation by their price. One indicator, the realized market cap, tries to circumvent this problem by including only recently moved coins in its computation.
The entire supply of a cryptocurrency is the total amount of tokens on the blockchain, including those not in widespread use. A cryptocurrency project may produce significantly more cryptocurrency than it distributes at the time of launching a new token or coin. For example, while currencies designated for staking rewards or payments made to individuals who secure tokens inside a protocol may “exist” on the blockchain, you might not be able to begin receiving them until a specific need has been satisfied or a particular period has passed. They are minted but have never left the mint and are not currently used. They could have been produced due to a “premise”—when a developer mines a significant number of coins before opening the blockchain but doesn’t distribute them to anyone—or a vesting term might govern them. Coins that have been burnt are not included in the overall supply. Tokens sent to a wallet that no one has the password for and have therefore been permanently withdrawn from circulation are referred to as such.
The quantity of coins that may ever be produced is the maximum supply of a currency or token. There are a maximum of 21 million bitcoins available. Once there are 21 million coins in circulation, no more can ever be “mined” (created as a reward for finding new Bitcoin blocks) due to a mechanism incorporated into the coding of Bitcoin. There are certain coins with limited supply. One such example is Ethereum; while there is currently no maximum limit to the number of ETH that may exist, only about 18 million ETH can be created annually based on the present block discovery periods and incentives.
For instance, LUNA is produced and burnt to maintain the $1 value of UST, a stablecoin tied to the US dollar and issued on the Terra ecosystem. Following the introduction of EIP-1559 in August 2021, Ethereum now burns a percentage of coins received as a transaction fee rather than giving them completely to miners.
Since each has a different application, it is impossible to define which of the three supply levels—total, circulating, or maximum—is the most crucial. However, knowing these peculiarities might help you navigate the cryptocurrency market and comprehend how they can affect a coin’s price. One important indicator is the fully diluted market cap, calculated by multiplying a token’s maximum supply by its current price. It contains vested tokens and may give rise to speculation that some market participants, like early backers or the project staff, would put a large number of tokens up for sale once they have access to the coin.
