In the context of cryptocurrency, “fixed supply” refers to a characteristic of certain cryptocurrencies where there is a predetermined and unchangeable limit on the total number of coins that will ever be created. This means that once the maximum supply is reached, no additional coins can be mined, created, or generated.
The most famous example of a cryptocurrency with a fixed supply is Bitcoin (BTC). Bitcoin has a maximum supply cap of 21 million coins. This means that once 21 million bitcoins have been mined, no more bitcoins will ever be created.
Having a fixed supply can have several implications for a cryptocurrency:
Scarcity: A fixed supply can create scarcity, which, according to economic principles, can increase the perceived value of the cryptocurrency. This is often compared to precious metals like gold, which are also finite in supply.
Inflation Control: It helps control inflation because the total supply of the cryptocurrency is limited. This is in contrast to fiat currencies, which can be printed in unlimited quantities by central authorities.
Mining Rewards: Miners are rewarded with newly created coins for validating transactions and securing the network. In cryptocurrencies with a fixed supply, the reward decreases over time through a process known as “halving” until it eventually reaches zero.
Store of Value: Some proponents argue that cryptocurrencies with fixed supplies, like Bitcoin, can serve as a store of value because their scarcity makes them resistant to devaluation over time.
It’s worth noting that not all cryptocurrencies have a fixed supply. Many cryptocurrencies have a mechanism for the ongoing creation of new coins, which can be used for various purposes like rewarding validators (Proof of Stake), facilitating transactions (transaction fees), or supporting network operations.
Ultimately, whether a fixed supply is seen as an advantage or a disadvantage depends on one’s perspective and the specific goals and use cases of the cryptocurrency in question.
