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Circulating Supply

Circulating Supply in cryptocurrency refers to the total quantity of coins or tokens that are currently in active circulation and available for trading within the market and among the general public.[1][2][3]

Overview

The circulating supply of a is similar to the outstanding shares of a publicly traded company. It represents the number of coins that are currently available for trading, as opposed to the total maximum coin supply. When a company issues a specific quantity of tokens, they typically release only a fraction of the total supply into circulation. The Circulating Supply is consistently smaller in comparison to the total supply of a token.[3][4]

The circulating supply of a plays a crucial role in calculating its . It also affects the supply-demand dynamics, which in turn influence the price of the coin. Different cryptocurrencies have varying approaches to determining their circulating supply, making it essential to grasp these concepts to better understand the market.[4]

How to Calculate Circulating Supply

cannot accurately measure the precise number of coins or tokens in circulation. Thus, any figure presented as the circulating supply is an estimate. The calculation involves taking the initial supply of coins or tokens created at the blockchain's launch and then subtracting various elements such as any coins that have been intentionally destroyed (burned), any portion of the supply that is temporarily locked for a specified duration, and any reserves earmarked for development, future release, or other specific purposes. This calculation aims to provide users and investors with a more accurate understanding of the actual number of coins or tokens available for trading in the market. [6]

Another way to determine the circulating supply is by dividing a cryptocurrency's market capitalization by its price. [6][7][8]The circulating supply formula for this method is as follows:

  • Circulating Supply = Market Cap/Price

Determinants of Cryptocurrency Circulating Supply

The circulating supply of a cryptocurrency is not fixed. Cryptocurrencies with a maximum supply that do not engage in will eventually reach a fixed circulating supply. For instance, this will occur with once all of its coins are mined. However, the situation differs for cryptocurrencies like , which have no maximum supply. In such cases, the circulating supply will continue to change indefinitely as new coins are created through the mining process or other means. This fundamental difference in supply dynamics can have implications for their value and scarcity.[5]

Factors that can affect a cryptocurrency's circulating supply include , , and .

Impact of Token Burns on Circulating

refers to the deliberate removal of coins or tokens from circulation by sending them to a burn address. The burn address is typically the first genesis address on a , and coins sent to this address are essentially taken out of circulation because no one possesses the private keys to access them.[5][9]

When coins are sent to a burn address, block explorers like detect a decrease in the total supply of the , which can often lead to an increase in its price. This mechanism has been used by projects like to significantly reduce their supply and, as a result, potentially boost the success and value of their project.[5][9]

Impact of Halving on Circulating Supply

Halving, as the term implies, is a process that involves reducing something by half. In the context of cryptocurrencies, it refers to the halving of crypto . This concept was introduced by , the creator of . Nakamoto established the rule that Bitcoin's block rewards would be cut in half after every 210,000 blocks are mined.[5]

When was initially launched, miners were rewarded with 50 BTC per block. However, as time passed and 210,000 blocks were mined, this reward was halved to 25 BTC. Subsequently, after another 210,000 blocks, it was halved again to 12.5 BTC per block, and then to 6.25 BTC per block. This halving process will continue into the future, resulting in even smaller block rewards for miners. The hope is that as this occurs, the price of will continue to rise, ensuring that even these reduced rewards remain substantial for miners. Price changes caused by the process consequently affects the coin's circulating supply.[5]

Impact of Mining on Circulating Supply

Mining or minting new coins is another way of increasing the circulating supply of a cryptocurrency. Mining occurs during the processing of transactions and the creation of blocks. Miners, who contribute their time, electricity, and computing power to the network, package transactions into groups known as blocks. Miners receive cryptocurrencies as rewards. The specifics of this process can vary depending on the consensus mechanism employed by a cryptocurrency.[5]

To illustrate this concept further, let's consider Bitcoin once again. Miners process BTC transactions, package them into blocks, and receive new BTC as a reward. These newly earned coins were originally part of the maximum supply but not part of the circulating supply. However, through the mining process, they are introduced into the circulating supply. [5]

Circulating Supply Vs. Total Supply Vs. Maximum Supply

The circulating supply refers to the coins that are available to the public and should not be confused with the total supply or max supply. The total supply is used to quantify the number of coins in existence, which is the number of coins that were already issued minus the coins that were burned. The total supply is essentially the sum of the circulating supply and the coins that are locked up in escrow. On the other hand, the max supply quantifies the maximum amount of coins that will ever exist, including the coins that will be mined or made available in the future.[1][10]

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