Cryptocurrency Considerations

Cryptocurrency supply

One of the first things we need to think about when creating a cryptocurrency is supply. The maximum supply is the total number of coins or tokens that will ever exist in the system.

The maximum supply of a cryptocurrency is determined by the underlying protocol of the blockchain on which it is based. For example, the creator of Bitcoin decided that the maximum supply of Bitcoin would be 21 million coins. This means that no more than 21 million Bitcoins will ever exist and that no new coins can be created. However, for Ethereum, the creators decided to have an unlimited supply.

The debate over whether cryptocurrency should have an unlimited or limited supply has been going on for some time. While there are advantages and disadvantages to both, it’s important to understand the implications of each before making a decision.

Limited supply

Cryptocurrency with a limited supply is often referred to as a deflationary currency because its value is expected to increase over time. A limited supply of cryptocurrency helps to prevent inflation because the number of coins in circulation is fixed and the price of the cryptocurrency is typically more stable. However, a limited supply makes it difficult to increase the liquidity of the market. Additionally, a limited supply can make it difficult for the asset to gain widespread adoption, as the limited number of users may make it difficult for the asset to gain the critical mass necessary for success.

Unlimited supply

An unlimited supply of cryptocurrency encourages more people to participate in the market. This can result in an increase in market liquidity, which allows a more stable market and is beneficial for both buyers and sellers. However, the downside of an unlimited supply is that it can lead to inflation as more coins enter the market and the value of each coin decreases. Additionally, an unlimited supply can create a situation where there is no scarcity of the asset, which could lead to a decrease in the perceived value of the currency.