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Views: The term “issuance” means the release of assets into the general marketplace. This concept came to the world of digital assets from the stock markets. The issuance of an asset is accounted for even before it is listed on exchanges. The tokenomics of an asset details the distribution of tokens between funds, the development team and users, as well as its issuance (how it will take place and under what conditions).
To compare the issuance of the stock market and the market of digital assets, we can point out one peculiarity. In the case of stocks, issuance does not occur more often than once every three years. In order to carry it out, meetings of directors are held, the process is approved with exchanges and regulators and only after kilometers of bureaucratic work the long-awaited issue takes place.
With the cryptocurrency market, the situation is completely different. In most cases, the issuance of coins may not stop at all. Miners will mine blocks for the blockchain to work so that it can carry out transactions. And for this they will be rewarded in the form of blockchain tokens. These tokens are not bought from market participants, they are created by the blockchain. This is called the issuance of cryptocurrencies.
Cryptocurrency issuance - what it is
Cryptocurrency issuance is the process of creating and issuing new units of cryptocurrency into circulation. It is the fundamental mechanism for the functioning of any cryptocurrency. This mechanism ensures the creation and maintenance of the supply of coins in the network, and is an important element in maintaining the value and liquidity of cryptocurrency.
The basic principles of cryptocurrency issuance are:
1. Maximize supply
Most cryptocurrencies have a limited maximum amount of coins that can be issued. For example, Bitcoin has this limit of 21 million coins. This is done to control inflation.
2. Speed of issuance
The rate at which new coins enter circulation is governed by the cryptocurrency's protocol. For example, Bitcoin has new coins generated approximately every 10 minutes.
3. issuance mechanism
The most common mechanism is mining, where new coins are “mined” by miners by solving complex cryptographic problems. There are also coins with other issuance models, such as Ripple, where new tokens are issued by the project team.
4. Rewarding miners
Miners are rewarded for mining new coins. The size of this reward decreases over time according to protocol, incentivizing more efficient mining.
5. Reward distribution
The distribution of rewards among miners is also determined by the protocol. It can be equal or proportional to the computational resources invested.
How cryptocurrencies are issued
Most popular cryptocurrencies such as Bitcoin, Ethereum, Litecoin and others use a mining mechanism to create new coins. This model is mainly inherent in coins that run on the Proof of Work mechanism.
The next model of issuance is Premine. In this approach, some coins are issued in advance, before the network is launched. This is usually done to provide initial liquidity, reward developers, or make distributions to participants. Examples include Ripple, Ethereum.
There is also scheduled issuance. Here, the issuance of new coins does not depend on anything other than a pre-programmed schedule in the blockchain code. New coins will be periodically released into general circulation. Examples: Stellar, Nano.
In cryptocurrencies with a Proof-of-Stake mechanism, new coins are released as a reward for “stacking” (blocking) existing coins. This incentivizes users to keep the network running. Examples: Tezos, Cardano, Ethereum (PoS).
Some cryptocurrencies practice regularly or irregularly burning a portion of coins, reducing their total supply. This is done to control inflation. Examples: Binance Coin, Shiba Inu.
What are the issuance options?
There are three types of cryptocurrency issuance. The chosen type of issuance depends on its further internal tokenomics and how coins will be distributed among the project participants.
1. limited one-time issue
In this case, the total number of cryptocurrency coins is strictly limited and cannot be increased in the future. All coins are issued at one time at the launch of the network. Examples: Filecoin, Decred.
Advantages: Provides stability of supply, high predictability.
Disadvantages: Can lead to coin shortages and high price volatility in the long term.
2. limited controlled issuance
The total number of coins is limited, but they are issued gradually according to a predetermined schedule. This allows the rate of issuance to be controlled. Examples: Bitcoin, Litecoin.
Advantages: Allows you to control inflation while keeping supply limited.
Disadvantages: Difficulty in accurately predicting issuance in the long term.
3- Unlimited controlled issuance
The total number of coins is not limited, but they are issued according to certain rules that allow you to control the rate and volume of issuance. Examples: Ethereum, EOS.
Advantages: More flexible liquidity and inflation management.
Disadvantages: The lack of an absolute limit on supply may raise concerns about long-term stability.
Ways to limit cryptocurrency issuance
Many cryptocurrencies have a predetermined maximum amount of coins that can be issued. Bitcoin, for example, has this limit of 21 million coins. This ensures that the supply is limited.
Also, the amount of reward that miners receive for mining new coins decreases over time according to the cryptocurrency's protocol. Bitcoin, for example, has its block reward halved every 4 years. This slows down the rate of issuance.
Some cryptocurrencies' protocols call for new coins to be issued at a fixed rate, regardless of mining activity. This allows the rate of issuance to be controlled.
Individual cryptocurrencies may limit the number of miners or impose limits on the computing power involved in mining. This also helps control the issuance rate.
How issuance affects the market
First of all, cryptocurrency issuance determines the supply of assets on the market. If the supply grows faster than the demand, this fact will put pressure on the price, which will lead to a further drop in the exchange rate. Limiting issuance helps to keep the balance between supply and demand. In addition, high issuance rates lead to cryptocurrency inflation, which reduces the purchasing power of the cryptocurrency. Limiting issuance helps to control inflation and maintain price stability.
Issuance also affects the volatility of assets. Abrupt changes in issuance can cause significant fluctuations in the price of a cryptocurrency. More predictable and smooth changes in issuance help reduce volatility.
Investor appeal is an important factor, as the limited supply that characterizes many cryptocurrencies makes them more attractive to long-term investors who expect the price to rise in the future.
What is the difference between the issuance of cryptocurrency and fiat money
Cryptocurrency issuance is decentralized, with no single central authority controlling the process. In the case of fiat money, the issuance is managed by central banks. Among other things, the rules and algorithms for issuing cryptocurrencies are transparent and embedded in their protocols. Fiat money issuance is less transparent because it depends on the decisions of central banks.
Here are a few more differences between cryptocurrency issuance and fiat money:
- Many cryptocurrencies have a predetermined limit on the total number of coins that cannot be exceeded. Fiat money issuance is unlimited.
- The rate of cryptocurrency issuance tends to be more predictable and regulated than fiat money issuance, which can fluctuate depending on central bank policies.
- Cryptocurrency issuance is often used to reward miners or holders for their participation in making the network work. The issuance of fiat money does not involve such incentives.
Conclusion
Cryptocurrency issuance is an important and delicate process that cannot be changed, because it is embedded in the coin's code, and this is its main distinguishing advantage from fiat money, where people change the rules when it suits them.
Cryptocurrency is still a high-risk asset, but there are already examples of coins whose advantages outweigh all the disadvantages and which can fully compete with traditional money.
Frequently Asked Questions
1. What issuance criteria should I consider when choosing a coin to invest in?
First of all, it is worth paying attention to how limited the emission is and whether it is limited at all, as well as in what way it will take place. For a long investment, coins with limited and controlled issuance will be suitable, as there is a clear number of coins and there can be no more. To invest intelligently in the chosen coin you can use Veles bots. Set up a grid of orders, designate the criteria for entry and the bot will open a transaction clearly according to the selected settings.
2. What is the difference between cryptocurrency issuance and fiat money?
First of all, the issue of cryptocurrencies is much more transparent than the issue of fiat money. The rules of issuance of cryptocurrencies are clearly defined and cannot be changed in any way.
3. How does cryptocurrency issuance affect the digital asset market?
Issuance controls the supply of assets in the market. The more supply there is for which there is no proper amount of demand, the lower the rate of the asset will be.
