Circulating Supply

Cryptocurrencies have gained significant popularity over the years, but understanding their intricacies can be a daunting task for newcomers. One important concept to grasp is circulating supply, which refers to the changing amount of cryptocurrency coins or tokens that are currently in circulation.

When it comes to cryptocurrencies, the supply of coins can vary over time. It can both increase and decrease, depending on various factors. To comprehend circulating supply, it is crucial to understand how different cryptocurrencies are created and distributed.

What are Mineable Cryptocurrencies and Supply Increase?

Some cryptocurrencies, like Bitcoin, are mineable. Mining involves the use of powerful computers to solve complex mathematical puzzles and validate transactions on the network. As a reward for their computational efforts, miners are granted a certain amount of newly minted coins. This process introduces new coins into circulation and contributes to the increase in circulating supply over time.

For instance, Bitcoin has a capped supply of 21 million coins. Currently, over 18 million Bitcoins have been mined, contributing to the circulating supply. However, it is worth noting that the rate at which new Bitcoins are minted decreases over time due to a mechanism called halving. Halving occurs approximately every four years and reduces the block reward given to miners by half. Eventually, all 21 million Bitcoins will be in circulation, but this will happen gradually over several decades.

What are Centralized Tokens and Instantaneous Minting?

Not all cryptocurrencies are mineable. Some tokens are created and distributed by centralized entities, like blockchain projects or companies. In such cases, the supply can be increased at the discretion of the developers through a process called minting.

Instantaneous minting allows developers to create new tokens instantly and introduce them into circulation. This method gives centralized projects greater control over the supply and distribution of their tokens. The decision to mint new tokens can be influenced by factors such as market demand, funding requirements, or governance decisions.

What causes the Decreasing Supply through Burning and Losses?

Circulating supply can also decrease over time. This can occur intentionally through a process called burning, where tokens are permanently destroyed. Burning can be used as a mechanism to control inflation or adjust the tokenomics of a cryptocurrency project. By reducing the supply of tokens, the remaining tokens become scarcer and potentially more valuable.

Additionally, supply can decrease unintentionally due to various reasons. Accidents can happen, such as sending tokens to an irrecoverable address or losing access to a wallet where funds are stored. These instances result in tokens becoming effectively lost and permanently removed from circulation.

One notable example of unintentional supply decrease is the case of Bitcoin. While the nominal circulating supply of Bitcoin should be over 18 million coins, which is the number of Bitcoin mined since the network’s inception, it is estimated that approximately 4 million BTC have been permanently lost. This brings the true circulating supply closer to 14 million.

What is Understanding Circulating Supply Metrics?

It is important to note that the network as a whole does not have accurate information regarding the exact amount of the total supply that is actively circulating. Therefore, the metric of circulating supply serves as an imperfect approximation.

Cryptocurrency market data providers and blockchain explorers utilize various methods to estimate the circulating supply of a particular cryptocurrency. They take into account factors such as known burned tokens, publicly reported losses, and on-chain transaction data to arrive at an estimate. However, these estimates may not be precise and can vary across different sources.

What is the difference between Circulating Supply and Total Supply and Maximum Supply?

It is crucial to differentiate circulating supply from total supply and maximum supply to have a comprehensive understanding of a cryptocurrency’s tokenomics.

Total supply represents the number of coins that have been mined thus far, minus the coins that have been intentionally burned. It includes both the coins in circulation and those that may not be actively traded or lost.

On the other hand, maximum supply refers to a hard-coded limit that neither the total supply nor the circulating supply can surpass. This limit is set during the creation of the cryptocurrency and ensures that the supply remains finite.

What is the conclusion?

In summary, circulating supply refers to the changing amount of cryptocurrency coins or tokens that are currently in circulation. It can increase through mining and instantaneous minting, and decrease through burning or unintentional losses. Circulating supply serves as an imperfect approximation, as the exact amount of actively circulating coins is often unknown. Differentiating circulating supply from total supply and maximum supply is essential to understand a cryptocurrency’s tokenomics and supply dynamics.