What is the Difference Between Scarce and Fiat Money?
Scarce money is a type of crypto-asset which has a limited supply. The total supply is fixed in advance and cannot be changed, unlike with many other cryptocurrencies and of course fiat. Scarce money also tends to have a high price because the scarcity drives the demand.
Fiat money is a type of fiat currency where the government has set out strict rules on how it can be used. It means that there are restrictions on what people can or cannot do with their money when they receive it from their employer or from any other source.
Fiat money does not have potential for growth when compared with scarce money which will grow over time as long as demand remains strong.
The difference between scarcer and fiat money can largely depend on who you ask, so it’s good to explore your understanding
Why Do Cryptos Have a Limited Supply
Bitcoin has a limited supply of coins, as it is designed to have a hard cap on the total number of bitcoins that will ever be mined. Currently, there are about 215 million bitcoins in circulation.
Bitcoin mining is the process of adding records of newly mined bitcoin transactions to Bitcoin’s public ledger of past transactions. The miner who successfully creates a block is rewarded with a certain number of bitcoins and transaction fees from the mining pool.
Cryptocurrencies with a limited supply of coins usually have a maximum supply of coins. In this case, there is a fixed number of total coins in circulation and they can’t be mined anymore.
This model is very different from the traditional fiat currencies. The latter can be mined endlessly and their supply is not limited.
Cryptocurrencies with a limited coin supply often have a maximum coin limit, but there are exceptions to that rule as well.
How can Cryptocurrencies with a Maximum Supply of Coins Work?
The total number of coins produced and distributed may vary, and is typically decided by the currency’s creator. For example, Bitcoin can never exceed 21 million coins, whereas Litecoin has the potential to produce 84 million currency units.
Much of this decision depends on what currency is being created for use as a currency or store of value. If it’s designed primarily as a currency, then there should be a lower maximum coin supply. Conversely, if it’s designed primarily as an investment vehicle (such as Bitcoin), then there should be a larger maximum coin supply to incentivize people to buy now in order to make more money later when the price goes up.
Cryptocurrencies with a limited supply of coins work by limiting the maximum number of coins that can exist.
There are various examples of cryptocurrencies with a limited coin supply. The Bitcoin blockchain, which has a fixed number of bitcoins, works in this way.
The Ethereum blockchain is designed to have an unlimited number of coins but restricts the creation of new ones by having “blocks” mined at every 12 seconds on average.
Is it Possible for Cryptocurrencies to have Infinite Supply?
Cryptocurrencies can be created quite easily and at a low cost. This is one of the main reasons why quite a few people are in favor of infinite coin supply for cryptocurrencies.
This is a topic that has been debated for a while now. And it seems like there is no clear answer to it. The debate over whether or not the supply should be finite or infinite started with bitcoin and continues to this day.
A lot of people who oppose this idea say that such an increase in supply would harm the value of these cryptocurrencies and would not provide any reward for miners who invest their computing power into solving complex cryptographic puzzles to get new coins.
The idea of a cryptocurrency with infinite supply is a popular one. There are a lot of people who believe that it is possible to create such a currency and there are many cases when it has been successfully done.
In economics, there is the concept of the doubling effect which states that an increase in supply will lead to a greater demand for the product. In this sense, infinite supply does not need to be an issue because it would just result in an increase in demand and value for the product.
Cryptocurrencies with a fixed supply of coins work because the value of the currency can potentially rise over time.
The idea behind cryptocurrency limited supply is that the price will be continually rising over time as more people adopt the currency and no new coins are minted.