(Originally Posted July 28th 2023)
Cryptocurrencies usually have a set supply limit of liquid currency that is in circulation, beyond utility and useability, that is what is supposed to give it value. Cryptocurrency is inspired by the gold standard system and how it worked with Fiat. The fact that there are only ever going to be a certain amount of cryptocurrency available in circulation to use is a huge driving factor towards price. The blockchain is used to ensure that every transaction is recorded and the amount of currency traded is logged for everybody to see and observe where the circulated currency is at all times.
Cryptocurrencies are often released in batches at a time to prevent interested holders from buying up the entire supply at once and hoarding it all for themselves. The thing with creating an economy is that many don’t think about the importance of variety in holders. There have to be enough holders for circulation to occur, if only a select few hold all of the currency then the value will just stagnate, and eventually those few holders will be hoarding an asset that has no value.
It’s no fun for new holders and participants to join in if there is a huge entry limit set by the few who got in early and started hoarding everything. This has been the death of quite a few coins, tokens, and ecosystems.
The supply number should not be changed either, no one should have the power to raise the limit to flood the currency market, otherwise, the currency will be devalued and assets associated with the currency will also lower in value. It’s happened before and many of the holders/participants either sell all their holdings and leave or stick around and become the few holding the remains of a crumbling empire.
It’s often unclear what drives the value of ‘Cryptocurrency’, it could be a new feature becoming available to holders of the currency, it could be the utility, it could be developed creations becoming available, it could be a program, tool, or application that only works on the blockchain and used by the related Cryptocurrency. But the most important thing about the currency is the supply. Fiat shows a good example of what happens when there is no ‘limit’, Don’t fall for it again in Cryptocurrency.
Helpful Links:
https://cointelegraph.com/explained/crypto-token-supplies-explained-circulating-maximum-and-total-supply – Overview of the different types of supplies
https://www.coindesk.com/learn/crypto-token-supply-whats-the-difference-between-maximum-circulating-and-total-supply/ – another overview but explained differently
https://www.coindesk.com/learn/inflationary-and-deflationary-cryptocurrencies-whats-the-difference/ – some examples of currencies with an infinite supply set.