Capped vs. Uncapped Coins and Tokens

Capped vs uncapped coins and tokens

Content provided by various contributors. DYOR.

Capped supply refers to a limit on the total number of tokens or coins created in a cryptocurrency. Once that limit is reached, no more tokens will be created.

Uncapped supply, on the other hand, refers to a cryptocurrency with no limit on the total number of tokens that can be created. This means that new tokens can be created indefinitely.

Capped supply can create scarcity, increasing cryptocurrency demand and driving its value. On the other hand, an Uncapped supply can lead to inflation and a decrease in value.

In most cases, capped supply is used to control inflation, while uncapped supply ensures that the token can be widely adopted and used in various ways.

Capped vs. Uncapped Coins and Tokens Benefits and Drawbacks

Capped supply coins and tokens have several benefits, including:

  • Creating scarcity: When the total number of tokens is limited, it can increase demand for the cryptocurrency, driving up its value.
  • Controlling inflation: Because new coins or tokens cannot be created once the limit is reached, capped supply can help control inflation.
  • Stability: With a capped supply, the value of the cryptocurrency should be more stable, as the total number of tokens will not change.

However, capped supply coins and tokens also have drawbacks, including:

  • Limited growth potential: If the total number of tokens is too small, it can limit the growth potential of the cryptocurrency.
  • Limited adoption: With a small number of tokens, it may not be easy to adopt cryptocurrency widely.

Uncapped supply coins and tokens have several benefits, including:

  • Unlimited growth potential: Because new tokens can be created indefinitely, the growth potential of the cryptocurrency is unlimited.
  • Wide adoption: With an unlimited number of tokens, it may be easier to adopt the cryptocurrency widely.

However, uncapped supply coins and tokens have drawbacks, including:

  • Inflation: With no limit on the total number of tokens, inflation can become a problem, leading to a decrease in value.
  • Volatility: Because the total number of tokens can change, the value of the cryptocurrency may be more volatile.

In general, capped supply is used when controlling inflation and creating scarcity are important, such as with a store of value like Bitcoin.

Uncapped supply is used in situations where wide adoption and unlimited growth potential are important, such as with a utility token like Ethereum.

Which one is Better: Capped or Uncapped Supply

It’s hard to determine whether a capped supply or an uncapped supply is better. It depends on the specific use case and the goals of the cryptocurrency.

Capped supply can benefit a store of value like Bitcoin, where controlling inflation and creating scarcity is important. In addition, because new coins or tokens cannot be created once the limit is reached, it helps keep the value of the cryptocurrency stable, making it an attractive option for investors.

Uncapped supply can benefit utility tokens like Ethereum, where wide adoption and unlimited growth potential are important. In addition, because new tokens can be created indefinitely, it allows for more flexibility in use cases and applications, making it an attractive option for developers and businesses.

Bitcoin live price
Btc
Bitcoin
$23.666
price
2.8075%
price change
TRADE NOW

In conclusion, both capped and uncapped supply have advantages and disadvantages, and the choice of which one to use will depend on the cryptocurrency’s specific use case and goals.

Read more from author

Editor's picks

What Are DeFi Lending Platforms?

Decentralized finance (DeFi) lending platforms are decentralized applications (dApps) built on blockchain technology that enable users to borrow and lend cryptocurrency. These platforms use smart contracts to automate the lending process, eliminating the need for intermediaries such as banks. Here's an example of how a DeFi lending platform might work: Alice wants to borrow 100 ETH, so she goes to a DeFi lending platform and posts a request for a loan. Bob, who has 100 ETH to lend, sees Alice's…

What is The Capital Gains Tax in Crypto?

Cryptocurrency capital gains tax is the tax imposed on the profit made from the sale or exchange of a cryptocurrency. The tax rate for capital gains can vary depending on the country or jurisdiction. Still, in the United States, it is typically calculated as the difference between the cryptocurrency's purchase price (or cost basis) and the sale price multiplied by the individual's marginal tax rate. In some countries like the US, you only need to pay the capital gains tax…

Cryptocurrency vs. FIAT Money

Cryptocurrency is a digital or virtual currency that uses cryptography for security. It operates independently of a central bank or government. Bitcoin, the first and most widely used cryptocurrency, was created in 2009. FIAT money, on the other hand, is a currency a government has declared legal tender, but a physical commodity (such as gold) does not back it. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material…

Short-Term vs. Long-Term Crypto Investors

Short-term crypto investors typically buy and sell digital assets within a short time, often within a few hours or days. They are often driven by market fluctuations and aim to make quick profits. Long-term crypto investors hold onto their assets for longer, often for several months or years. As a result, they often believe in the technology and potential of the digital asset they are investing in and need to be more focused on short-term market movements. Short-Term vs. Long-Term…

What Are Bitcoin Maximalists?

Bitcoin Maximalists believe that Bitcoin is the only true cryptocurrency and that all other cryptocurrencies are inferior or unnecessary. Therefore, they often advocate for using and adopting only Bitcoin and reject the idea of diversifying one's cryptocurrency portfolio with other coins or tokens. Bitcoin Maximalists are known for their strong belief in the value and potential of Bitcoin as a decentralized and scarce digital asset. They often view it as a store of value or hedge against traditional fiat currencies…

Coins vs. Tokens: What Are the Differences and Similarities?

Crypto coins and tokens are digital assets that use blockchain technology, but they have some key differences. A crypto coin, like Bitcoin or Litecoin, is a standalone digital currency used to buy goods and services or traded on cryptocurrency exchanges. Coins have their blockchain and can be mined (created by solving complex mathematical equations) or minted through staking. On the other hand, a token is a digital asset built on top of an existing blockchain, like Ethereum or BNB Chain.…

What Are Overbought and Oversold Conditions in Crypto Trading?

Overbought and oversold conditions in crypto trading refer to situations where the price of a cryptocurrency has moved to an extreme level in one direction or the other. An overbought condition occurs when the price of a cryptocurrency has risen significantly and is considered too high relative to its recent trading history. This can indicate that the market is becoming too bullish and that the price may soon experience a correction. An oversold condition occurs when the price of a…

What is Crypto Tokenomics?

Crypto tokenomics refers to the economic principles and mechanisms that govern the creation, distribution, and use of tokens within a blockchain-based network. A token is a digital asset that can be traded on blockchain platforms and represents a certain value or utility within a specific ecosystem. For example, consider a decentralized application (dApp) built on the Ethereum blockchain. The dApp might issue its token, let's call it "APP," which can be used to access certain features or services within the…

What Are Gold-Backed Tokens?

Gold-backed tokens are digital assets backed by a physical asset, in this case, gold. They are typically issued by a company that holds a certain amount of gold in reserve. The company will issue certain tokens representing a specific amount of gold. For example, one token might represent one gram of gold. These tokens can be bought and sold on various cryptocurrency exchanges, similar to how other cryptocurrencies, such as Bitcoin, can be traded. The token's value is tied to…