What is a hard cap?
A hard cap is the maximum supply of a cryptocurrency that can ever exist. It’s hardcoded into the blockchain’s code and sets a strict limit on how many tokens or coins can be created. This limit promotes scarcity, which can help boost the value of each token over time.
Take Bitcoin (BTC), for example. Its creator, Satoshi Nakamoto, set a hard cap of 21 million coins. No matter how much demand there is or how many miners try to produce new Bitcoin, the supply will never exceed 21 million.
Why does a hard cap matter?
Absolute scarcity is a big deal in crypto; it’s like Bitcoin being digital gold, but even more limited. If demand increases, the price may rise because no new coins can be created to meet that demand. The only way a cryptocurrency could increase its supply would be by changing its core code — basically reinventing itself.
Compare this to gold: If it were easier for everyone to mine gold suddenly, the supply would increase, and the price would drop. Bitcoin doesn’t have this issue because of its fixed, hard cap.
Hard cap vs. soft cap in ICOs
The term “hard cap” also shows up in the world of initial coin offerings (ICOs). When projects raise money through ICOs, the hard cap is the maximum amount they aim to collect, while the soft cap is the minimum needed to launch the project.
Think of the soft cap as the minimum fundraising goal, while the hard cap is more of a stretch goal. The hard cap is usually set higher to allow for more fundraising potential, but it doesn’t always mean the project will reach that target.
In both cases — whether talking about total supply or fundraising limits — a hard cap helps set clear boundaries, promoting transparency and scarcity.
Now, let’s explore Bitcoin’s 21-million hard cap — why it’s so important and what could happen if this cap were changed.
The significance of the 21-million Bitcoin hard cap
Bitcoin’s 21-million hard cap ensures its scarcity, acting as digital gold and a store of…
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