Why do some cryptocurrencies have an infinite supply?
The variety of cryptocurrencies is limited only by the imagination of their creators. Some cryptocurrencies are tokens, while others are coins; some can be staked, while others cannot. There are cryptocurrencies with a limited supply as well as cryptocurrencies with an infinite emission.
The limited supply (maximum supply) of BTC is the primary regulator of its natural deflation. Satoshi Nakamoto created a supply model to replicate the value of gold, a valuable but limited resource. However, some cryptocurrencies have an infinite supply, making them inflationary. What are these assets, and how are their value and supply controlled?
Ethereum (ETH)
Ethereum is a decentralized open-source blockchain that supports smart contracts. After completing the merge, Ethereum switched from PoW to PoS. ETH is mined at a constant rate of 18 million per year, regardless of the total supply. There is no limit on emissions, but a deflationary burning mechanism is applied. Furthermore, the cost of ETH is determined by the specifics of smart contracts.
The protocol is designed so that the supply of ETH ranges between 120 and 125 million coins (122.3 million ETH press time). However, we cannot be certain that these figures are correct due to the pre-mine.
Monero (XMR)
Monero (XMR) is a decentralized anonymous cryptocurrency that runs on a PoW blockchain. Monero employs a ring signature as well as a hidden address algorithm. The platform uses a combination of the sender's account keys and the public keys on the blockchain to create a ring signature. This procedure ensures the confidentiality of any network transaction.
XMR emissions are still not subject to any limits. But it has a mining rate limit to prevent uncontrolled mining. The rate of coin generation slows as supply increases. When the total supply reaches 18 million coins, the rate will remain constant at 0.6 XMR per minute, or 315,360 coins per year. This indicates that the XMR supply will eventually reach 21 million coins, similar to Bitcoin, in about 9.5 years. After that, it is planned to freeze the offer at this value. However, it is unclear how this will be accomplished, whether by burning or abandoning mining.
By the way, calculations show that it will take 120 years before the last bitcoin is mined.
EOS
The EOS coin is a native cryptocurrency of the EOSIO decentralized application platform, which runs on a blockchain that uses the original DPoS consensus algorithm. According to the project's official website, 1 billion coins were released into the circulation during the presale (2017–2018), with 90% going to early investors and 10% going to developers. There are currently less than 1.1 billion EOS in circulation. The small increase in the number of circulating coins is due to a protocol limitation: the total supply cannot be increased by more than 5% per year.
The block reward is also regulated by limiting the growth in the total supply. Otherwise, the EOS mining process would get out of control very soon because this coin belongs to energy-efficient cryptocurrencies.
Dogecoin (DOGE)
Dogecoin (DOGE) is a Bitcoin fork with several significant differences in the source code. However, its mining process is similar to that of BTC.
Dogecoin is an inflationary currency because it does not have a fixed coin supply. Though it wasn't always that way.
DOGE was created with a fixed coin cap of 100 billion and a block reward of 100,000 coins until 600,000 blocks were mined. However, the developers of Dogecoin decided to change the protocol at the beginning of 2014, three months prior to the payment of the last reward to miners. They enabled unlimited emission while maintaining a fixed level of the block reward of 10,000 coins per block. As a result, Dogecoin has evolved into a deflationary currency with a gradually declining inflation rate (3.6% in 2024, 3% in 2030, and 1.5% in 2065).
Stablecoins
Stablecoins are cryptocurrencies that are pegged to the value of fiat currencies:
● the U.S. dollar (USDT, USDC, BUSD, DAI);
● euro (EURT);
● yuan (BitCNY);
● the Japanese yen (JPYT).
They are backed by infinite reserves of the base currency. The tokenized counterparts linked to fiat money do not have a hard supply limit because the issuance of fiat money is governed by market laws and Central Bank directives. The number of stablecoins in circulation is solely determined by their demand on the cryptocurrency market.
It is more important for cryptocurrencies of this type to keep the price stable to maintain the pegging to the fiat asset. If the price of the stablecoins falls below the underlying asset, the issuing company redeems them through the arbitration system and converts them back to the fiat currency. The token's price increases as the supply is reduced. If the stablecoin's price rises, the situation reverses.
The content on The Coinomist is for informational purposes only and should not be interpreted as financial advice. While we strive to provide accurate and up-to-date information, we do not guarantee the accuracy, completeness, or reliability of any content. Neither we accept liability for any errors or omissions in the information provided or for any financial losses incurred as a result of relying on this information. Actions based on this content are at your own risk. Always do your own research and consult a professional. See our Terms, Privacy Policy, and Disclaimers for more details.
Articles by this author
