For any cryptocurrency, supply is one of the most important factors that will reflect on price significantly. Ones who want to analyze and invest, or trade, or whatever, should know of these basics before you actually put your money in crypto.
Supply as a general term means product stocks, or limited resources. In the investment world, supply also has a very similar meaning to that of the real-world economics where there are demands and supplies everywhere. Be it gold or stock to any products and services. This supply and demand are what drive the price move, and you should pay attention to it.
Supply Meaning in Cryptocurrency
In crypto, supply is the total amount of specific coin or token available for investors to trade. Supply can go up after time, which we call inflation, or go down, which we call deflation. Total number of supplies also needs to match the demand or total number of investors in each blockchain in order to stay competitive and rise over time too.
Blockchains have their own coin as their currency, combining with utilities that make them differentiated from other blockchains. There are many types of blockchains, but the most popular ones are the Store of Value blockchains such as XRP or Stellar. Or blockchains that focus on smart contracts such as Ethereum or Polkadot.
Anyway, knowledge and data analysis will help you to get more understanding into the blockchain you are going to invest in, or already invested in, but it’s not guaranteed that you will gain profit for your investment. There are many more uncontrollable factors both inside and outside that can make your investment go to the moon or go under the basement level.
Types of Supply
Generally, there are three types of supplies in the crypto world. Knowing the differences between them will significantly help you in your understanding of the blockchain.
Total Supply
Total Supply is obviously the total number of supplies in the system. One of the most popular ways, or should I say the only way, to reduce total supply is the “Burning Mechanism” of the coin. Burning is the way to destroy any supply in the blockchain by transferring coins to a void or blackhole wallets. Ethereum and Terra Luna Classic will both have less supply over time due to the “Burning Mechanism” of the coins. So, over time, the coin will be less, thus the price will rise. You can take a look at Luna Classic Burn Tracker for an idea of how it works.
Locked coins also counted towards total supply. Other factors are counted as well, and different between blockchain based on their Tokenomics whitepapers.
Circulating Supply
Circulating supply is a number of coins available to be traded in the market right away, both buy and sell. These supplies are mostly in a cex (centralized exchanges), or any kind of wallet that are not staked nor locked in any kind of contracts nor yield farming.
Circulating supply can be increased or decreased over time due to different factors. For example, Bitcoin will have more supply increased over time from miners who get Bitcoin as rewards from mining and validating network transactions.
Maximum Supply
Maximum Supply is obviously the maximum number of supplies in the system. Be a Consensus Algorithm within the Proof of Work blockchains or minting in Proof of Stake blockchains, there will be no more total coins than maximum supply, period. For example, Bitcoin has a maximum supply of 21 million coins, when Ethereum has no limit in maximum supply they can be as high to the sky as they needed.
For investors, it is recommended to keep as close a watch at supplies as possible. For instance, you can follow Terra Classic supply tracker tool, and watch the supply closely for your maximum insights of the blockchain. Investors who take more caution to supply tend to succeed more than the ones who do not. Don’t be the careless guy after you have read this article!
