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How do cryptocurrencies with a fixed supply differ from those with an unlimited supply?

It is evident cryptocurrencies are one of the biggest inventions that have come into existence in recent decades. Investors all around the world are attracted to cryptocurrencies, and there are several types of cryptocurrencies, all of which have different properties. There are cryptocurrencies that do not have an upper limit on their supply, while some exist in the market which has a limited supply. The way these blockchains are created are different, and the way they function varies, along with the attributes that influence their rarity in the market. Some cryptocurrencies are deflationary, while some are not. Let us look at different aspects of cryptocurrencies with and without a limited supply and understand their differences. Bitcoins are the best example of a cryptocurrency with a fixed upper limit, is one of the best trading platforms.

The fundamental difference- Total number of coins to be supplied into the market

This attribute is decided before the release of cryptocurrencies, and the upper limit on the supply of these coins in the market is applied very rigidly. For example, the biggest example of a cryptocurrency with a limited supply would include Bitcoin, and its upper limit stands at 21 million. Only 21 million currencies can stay in circulation. There are many other coins with a fixed supply. This creates an urgency in the mind of the public. In addition to its image as a store of value, Bitcoins are often viewed as valuable collectibles as well. As the number of coins approaches the upper limit, the rarity of these coins increases as well. Rarer coins witness an increase in their price. This implies that coins with an upper limit on their supply tend to have more value than the ones that do not have an upper value. It is crucial that investors research different aspects related to cryptocurrencies before jumping in blindly to invest in one of these coins.

Inflationary and Deflationary cryptocurrencies

Some cryptocurrencies are inherently inflationary in nature. Let us take Bitcoins and Dogecoin, for example. Any cryptocurrency can be mined and made available to the public for trading. Thus, the number of coins available in the market can be spiked, which would decrease its buying capability. However, in the case of Bitcoin, the rate of burn is high. Additionally, as the total number of Bitcoins approaches the maximum, the block difficulty also increases, which makes it harder to mine the same. Thus, the rate of supply is hard, if not impossible, to cross the rate of demand. However, in the case of Dogecoin, the algorithm difficulty is relatively easier, which implies that more coins can be mined, and brought into existence with ease. This would lead to a higher rate of supply than the rate of demand, which in turn reduces its buying capability. Thus, Dogecoin is prone to inflation.

However, in the case of some cryptocurrencies, the rate of supply is lower than the rate of demand, which makes it rarer than others. The lower rate of supply ensures that this coin acts in a deflationary manner. Some coins that are deflationary in nature include the Binance Coin (BNB), Ripple (XRP), and Polygon (MATIC).

In the case of Ethereum, there is no long-term fixed limit on the number of coins that can be supplied to the market. However, a cap on the number of coins that can be made available in the market during a year is set at 18,000,000. This implies that there is no cap on the maximum supply of Ethereum in the market. However, the yearly cap creates scarcity, which encourages investors to buy Ethereum, as it stands as the second-largest cryptocurrency to exist in the market. Once a cryptocurrency reaches the upper supply limit, mining of new coins is ceased. No new coins can be introduced to the market. However, an investor must not invest in cryptocurrencies on the based of their rarity alone but also look at other aspects of the currency that can predict future growth or demise.

Cryptocurrencies with a limit on the maximum supply are usually rarer than the ones with an infinite supply, which makes them more resistant to inflation. The way these cryptocurrencies differ a lot, and it is important for investors to research Bitcoins and its alternative before they go ahead and invest in the currency. The rarity is the most notable difference in cryptocurrencies of these two types, and it is majorly responsible for the difference in the value of these two types of cryptocurrencies over Bitcoin Trading Platforms!


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