Tokenomics — the topic of understanding the supply and demand characteristics of cryptocurrency.In the traditional economy, economists monitor the issuance of a currency using official money supply data. The numbers they report are generally called M1, M2 and — depending upon the country — M3 or M4 as well.
An in-depth explanation of the four M categories is beyond this tokenomics analysis: just know that M1 is a measurement of the most liquid monies, M2 is less liquid, and so on. These numbers help to enable transparency and monitoring of different aspects of the supply of a currency.
These numbers are important because throughout history, kings, queens and governments have had a habit of creating additional money in their country. It turns out that running a country or fighting a war can be very expensive, and it was not always easy to raise revenues or balance a budget, which meant that it was often politically expedient to simply create more currency.
In the modern world, things like bank bailouts and pandemic responses have required governments around the world to create substantial amounts of new currency very quickly. While governments oversee this process, creating additional currency can cause a slow, or sometimes fast, reduction in the value of the existing money.
We call this reduction “inflation” and it is most visible when the prices of the things we buy increase year after year.
1
What Is a Token?
Before diving into tokenomics, let's take a look at what a token means. A token is a digital unit of a cryptocurrency that are used as a specific asset or to represent a particular use on the blockchain. Tokens have multiple use cases, but the most common are as security, utility and governance tokens.
Cryptocurrencies and tokens built on blockchain have pre-set, algorithmically created, issuance schedules. This means that we can predict with quite some accuracy how many coins will have been created by a certain date in time.
Though it is possible for most cryptoassets to have this issuance schedule altered, it will normally require the agreement of many people and is very difficult to implement.
This provides some comfort and security for owners, because they know the tokenomics and what degree their asset will be created in a way that is much more predictable than governments creating money.
2
What Is The Total Bitcoin Supply?
In total, there will be just 21 million Bitcoin produced. The total Bitcoin supply will be reached around 2140. Until then, the number of new coins that are created via the mining process will decrease by half, roughly every four years. This is known as the Bitcoin halving and was designed to create what economists call scarcity, therefore providing upwards pressure on prices.
While 21 million of total Bitcoin supply may sound like a very large number, when compared to the 8 billion or so people on earth, it is obviously incredibly small. It is this imbalance that leads many people to compare Bitcoin to gold and think of it as “hard” money. As the first crypto to be created, the issuance process and schedule of Bitcoin has led the way for others.
For example, Bitcoin Cash, Bitcoin SV and Zcash also have a hard cap of 21 million coins. Others, such as Litecoin, use the same framework but have a larger overall number.
3
Dogecoin and Grin Circulating Supply
However, there are coins whose schedule is very different. For example, both Dogecoin and Grin have issuance that is identical for every new block created forever, which means that their token supply is essentially unlimited.
Dogecoin circulating supply is currently 131.13 billion as of September 2021, with no fixed maximum supply. It has an inflationary supply, instead of a deflationary one like Bitcoin. Proponents of Dogecoin, which include high profile billionaires, argue that this tokenomics is what makes it a usable currency.
The founders of Grin hope that this feature will make it easier to maintain a stable price and thus become a more usable currency. It will take years to understand whether this actually happens.
In between these two positions are plenty of coins and a lot of tokens — many operating on Ethereum — that have a maximum issuance in place, but that number is very high. For example, Tron has a total supply capped at more than 100 billion.
There are also situations where the number of coins or tokens will reduce. Some projects have created rules in which a certain number will be burned — which means that they will be transferred into a wallet that cannot be recovered — at set intervals. Burning usually relates to operating fees, so that the more an asset is used, the faster its tokens are burned.