Total Supply

Total Supply definition: The overall quantity of tokens that a cryptocurrency project will eventually generate and distribute.

The term "Total Supply" refers to the maximum number of a specific token that can ever exist within its respective blockchain network. This term is of utmost importance as it provides a definitive cap on the amount of a cryptocurrency, shaping both its scarcity and value. Total supply is often predetermined by the developers at the time of a cryptocurrency's creation and is publicly recorded in the network's protocol for full transparency.

Total Supply differs from the currently circulating supply, which is the number of tokens that are actively in the market and in the hands of the public. While circulating supply can change due to various activities like trading, staking, or being locked in smart contracts, the total supply remains a constant figure unless altered through community consensus or protocol changes.

Understanding the concept of total supply is critical for anyone involved in cryptocurrency trading, investment, or development. For traders and investors, the total supply plays a vital role in supply-and-demand economics. A lower total supply often suggests greater scarcity, which could, in theory, drive up demand and consequently the token's price. On the other hand, a very high total supply could potentially lead to lesser value per unit, which is why investors often consider this metric carefully.

Developers, too, must carefully consider the total supply when launching a new token or blockchain project. They must find a balance that ensures the token is neither too scarce, making it prohibitively expensive for new users to adopt, nor too abundant, which might dilute its value. Decisions about total supply can have long-term impacts on a project's success and are often a topic of interest in whitepapers and community discussions.

An essential aspect to understand is that not all cryptocurrencies have a fixed total supply. While Bitcoin, the first cryptocurrency, has a capped supply of 21 million coins, other tokens like Ethereum currently do not have a fixed limit. This flexibility in total supply allows different cryptocurrencies to serve various purposes, be it as a store of value like Bitcoin or as fuel for decentralized applications like Ethereum.

The concept of total supply extends beyond merely shaping a token's economic model; it also influences a cryptocurrency’s security dynamics. For proof-of-stake (PoS) and proof-of-work (PoW) systems, the distribution of tokens affects how decentralized the network remains over time. Too much concentration of supply can lead to centralization, which is often considered a vulnerability in the cryptocurrency space.

In summary, the term "Total Supply" serves as a fundamental metric in the cryptocurrency landscape, influencing a token's economic structure, investment attractiveness, and even its network security.

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Michelle Legge
By Michelle LeggeHead of Crypto Tax Education
Updated Nov 9, 2023
This article has been fact checked and reviewed as per our editorial policy.