One of the similarities between crypto and fiat currencies is that they both follow the principles of demand and supply which determine their growth and market value. For instance, there are only 21,000,000 bitcoins in the crypto ecosystem, which is encoded in Bitcoin’s source code. Meaning to say, once Bitcoin reaches its limit of supply cap, no more coins will be allowed to enter circulation anymore.
There are also digital currencies that have unlimited supplies. There is no lifetime cap of tokens or coins that can be mined, making these cryptocurrencies inflationary. With this, more coins will be introduced to the circulation for a continuous flow of supply.
However, you might wonder why some crypto investors prefer investing in cryptocurrencies with limited supply. What makes it more ideal than coins or tokens which can offer unlimited reserve in the crypto sphere? To learn more about their differences, continue reading below!
Cryptocurrencies with an unlimited supply
Digital currencies with unlimited supply experience inflation. When applied in the cryptocurrency ecosystem, the more the coins enter circulation, the more they lose their value.
For example, Dogecoin does not have a built-in scarcity, unlike Litecoin that has a finite supply of 84,000,000 LTC.
According to CoinMarketCap, there is more than 132,000,000,000 DOGE in circulation as of writing. Every five years, the total supply will expand by 5,000,000,000 which can go on forever. This removes Dogecoin from being a potential long-term investment prospect since its dilution reduces the worth of its tokens.
However, this encourages investors to trade their coins instead of stockpiling them in their digital wallets. And despite its inflationary nature, Dogecoin holds the 10th rank in the market.
Here are other examples of cryptocurrencies with unlimited supply that you can invest in:
One of the most known digital currencies with unlimited supply is Ethereum. However, what makes it different from other coins is that the developers have found a way to issue a fixed supply. This means that regardless of its total supply, the same 18 million ETH is mined per year. Consequently, the more tokens are mined, the lower the rate of inflation becomes.
As of writing, there is a total of 118,559,561.50 ETH in the circulation supply.
Launched in 2014, Monero is a privacy-centred cryptocurrency that aims to make transactions within the network untraceable and anonymous. It uses ring signatures and stealth addresses to hide their identities, as well as conceal the total amount of a certain transaction.
Just like Ethereum, there are no fixed amount of Monero tokens mined within the network. Monero will be obliged to create new tokens that should enter the market to sustain the constant flux of supply. It will continue to grow over the years, which makes it unsuitable crypto to use as a store of value.
There are 18,038,606.15 XMR in the circulation supply as of writing.
Cryptocurrencies with limited supply
Cryptocurrencies with limited supply experience the opposite phenomenon—deflation. In layman’s terms, the tokens or coins currently in circulation gains value as years go by. So, once the amount of coins matches the total limited supply, investors will be more attracted to trade them because they gradually become rare.
One of the best examples is Bitcoin. Once all the 21,000,000 BTC are generated, there will be no more coins available to mine. At the moment, 90% of the supply has circulated, which is equivalent to 18,887,743.00 BTC. Adding more Bitcoins to the supply can only be executed if its protocols are changed.
With this, Bitcoin’s hard cap is one of its valuable attributes, especially when it comes to investing.
Check out other examples of cryptocurrencies with a limited supply below:
Developed in 2017, Cardano uses ADA as its native token. It is considered to be a public blockchain platform that operates on proof-of-stake consensus, allowing users to validate block transactions according to the number of tokens they own.
This digital currency has a total limited supply of 45,000,000 ADA. As of the moment, there are already 33,719,282,563 ADAs that have been generated.
Litecoin has always been known to be the silver version of Bitcoin. When it was released to the crypto market in 2011, it became a strong competitor of Bitcoin, offering lower transaction fees and lower block time.
Its limited supply is 84,000,000 LTC, and currently, a total of 69,089,132.32 LTC has been mined. According to Litecoin Block Reward Halving Countdown, the last block is expected to be generated in 2142.
Binance Coin (BNB)
Binance Coin is the native token of Binance—a cryptocurrency exchanging site. However, before it became Binance’s token, it initially operated on the Ethereum blockchain as an ERC token. Each quarter, Binance utilizes one-fifth of its revenues to permanently burn the coins within its network.
In this way, burning tokens help them take these assets out of circulation to have control over the token’s price inflation. Binance bases its coin burning on the number of transactions performed on the platform within three months.
According to CoinMarketCap, Binance Coin has already reached its cap limit which is a total of 166,801,148.00 BNB.
Fixed vs. unlimited supply: Which should you invest in?
Although cryptocurrencies with unlimited supply experience inflation, it doesn’t mean that they hold no value at all. For instance, even though Ethereum has no fixed supply, it holds the 2nd rank in the crypto market with a market capitalisation of US$562,772,477,181 at the moment.
However, cryptocurrencies with limited supply are more attractive and remain the top choice for investors because their value is retained or increased over time.
As an investor, it is your responsibility to assess if hard-capped coins or tokens hold more possibilities to boost their market value over their counterparts. Aside from the principles of supply and demand, you should consider other factors such as price history, community activities and planned forks in the future.