When you play in the crypto field, you must be familiar with the Token Supply term. People use this term a lot when they are talking about investment with cryptocurrency. By understanding what token supply is, you can use it to improve your trading. Who knows maybe you can even make more profit because of it? Therefore, in this article, we will try to help you to learn more about token supply.
What is Token Supply?
Token supply is the number of tokens that are and will be available on the market. The volume of the token supply is finite. It is made like this to increase the value of the cryptocurrency that it represents. In short, it defines the investment value of the cryptocurrency. By limiting the supply, it can also stimulate the market to grow.
The Type of Token Supply
Token supply can be divided into several categories based on the number of the tokens as well as the time when it reaches that number. Here is some of the type of token supply you should know:
- Initial Token Supply
Initial token supply is the number of tokens when it was first released. You can see it when you find how many initial tokens you can get during ICO (Initial Coin Offering). Mostly, the number represents the number of funds that the project needs to grow.
However, the number of tokens in this event won’t be limited. Mostly, the issuer will release another number of tokens at a later date, following the ICO event. You can find the second or third and even fourth wave of tokens released after the initial token release.
- Current Token Supply
This number represents how many tokens are currently circulating. However, it doesn’t represent the total number of tokens that exist. We can say that the current token supply is the upper limit of the number of tokens you can own, even though it is impossible to own all those current token numbers. But, you can use it to know whether the cryptocurrency that you choose is profitable for investment or not.
- Total Token Supply
The token is similar to money. If you make too many, it will cause problems. You know about inflation or deflation, don’t you? The value of the token can decrease because of the unlimited policy of its creation. Therefore, since its introduction, there is a total token supply that the issuer set.
Total token supply is, basically, the fixed number of tokens that can exist in the market. The issuer will determine the number of tokens they will release. And, this number is unchangeable. Why? We have explained the reason above. Limiting the token circulation number will increase the value of the cryptocurrency of that token. Thus, it makes people want to invest more.
- Unlimited Total Token Supply
Interestingly, you also can find a specific cryptocurrency that doesn’t have a limit for its Token Supply. This kind of token is available all the time and can increase its number without limit. One of the examples of cryptocurrency with an unlimited token supply is Ethereum. So, why can this cryptocurrency have an unlimited supply?
The answer is the difference in how to use it. For example, Bitcoin has a total token supply limit of 21 million BTC (the code of the Bitcoin token). The limit is necessary here because we use Bitcoin only in the financial field. So, if you use the unlimited system on Bitcoin, it can make the financial and trading market collapse.
On the other hand, Ethereum has an unlimited supply because people use it for different purposes. You can pay for gas using Ethereum, buying an item, and various other transactions. Therefore, the utility value of Ethereum balances its unlimited supply system. However, Ethereum has maximum annual supply limit of 18 million ETH (the code of the Ethereum token) tokens.
Nevertheless, both of the total token supply types have their benefits for your investment. So, you can choose any of those types that you like and make a profit from it. The strategy and how you trade it are the ones that will affect how much profit you can get from it.
- Maximum Token Supply
Maximum token supply represents a total token number minus the number of burnt tokens. To understand what this token supply is, you should also understand the practice of token burn.
The token issuer uses token burns to reduce the total token supply that they have released. They did this to increase the token scarcity. Similar to investment products, when the token number has been reduced, its value will increase because of its high rarity. So, where those token that was burned? As we all know, the number of tokens that the issuer set from the ICO cannot be changed.
The burnt token is sent to a specific digital wallet. This digital wallet doesn’t have a private key or any access that allows anyone to access or open it. By sending the token to this wallet, it means those tokens are virtually gone. However, this practice is not available on the cryptocurrency that uses an unlimited number of the total token supply system.
- Minted Tokens
This number shows the number of tokens that have been created. Just a reminder here, we use the word “create,” not “release.” It means that this total supply represents all tokens. They are the number of the released tokens and the locked and keeps in the wallet, including the burnt one. This number gives you a reference to how strong the cryptocurrency that uses that token is. So, once again, you can use it as the base to make the cryptocurrency investment.
As you can see, Token Supply is not only about the number of tokens you can find on the exchange market. It covers various aspects that allow you to learn more about cryptocurrency and its condition. It is the basics you must understand to be a successful investor and trader in the cryptocurrency market.