Types of cryptocurrency issuance

Cryptocurrency, like any other asset, must be put into circulation before it can be purchased. Without this, it will not be available to potential owners.

The method of issuance affects inflation control mechanisms and the total number of available assets at a given point in time.

What is issuance

The process of issuance is called issuance, and the body dealing with it is called the issuer. This terminology is used in relation to both the stock and cryptocurrency markets.

Issuance can take place in a centralized and decentralized manner. In the first case, the role of the issuer is played by the creators of cryptocurrency. They generate all coins independently, without the use of mining. Validators only support the work of the network through the steaking of the issued cryptocurrency.

With decentralized issuance, coin generation happens through mining. The creators do not control the issuance process, it is the responsibility of the mechanism embedded in the blockchain.

Unlike coins, tokens are always generated by developers, as they are created based on an already existing blockchain. After minuting, the entire volume of tokens goes to the creator’s wallet and can then be sold out during tokensales or after listing on an exchange.

Types of emission

The type of issue determines the mechanism of token generation. The volume of cryptocurrency issuance for a particular period depends on it.

Limited

With limited issuance, the volume of cryptocurrency issued is predetermined by the developers and can not be changed. Thanks to this mechanism, inflation of the asset cannot be caused by the additional impact of the cryptocurrency on the market, as it happens with fiat currencies.

Limited issuance is divided into two subtypes:

one-time;
gradual.

In a one-time generation, the total volume is issued at once. Coins with this type of issue are not mined, as miners have nothing to mine, all the cryptocurrency is already available. This approach saves the coin from inflation caused by the excess of supply over demand, because after generation, the volume will no longer increase.

NEM, Cardano and Ripple all use this approach.

Gradual limited issuance is provided by mining. New coins are constantly mined and gradually put into circulation until they run out. The systematic increase in the volume of cryptocurrency allows to balance supply and demand, also helps to avoid the low value of the asset due to a larger volume, as in the case of one-time generation. This mechanism of price stimulation due to limited supply does not always lead to an increase in the exchange rate, but it can have a positive impact on it.

The most popular example of a coin with such an issue is bitcoin. It is also used by Litecoin and Dash.

Unlimited

With unlimited issuance, new coins are constantly generated through mining. The total volume has no limit. It will grow as long as the cryptocurrency is in demand and will be mined. This type is referred to the most risky in terms of inflation, since the supply is not limited by anything. As a rule, this disadvantage is compensated by developers with fast transactions, due to which it is convenient to use the coin.

The most successful cryptocurrencies with unlimited issuance are Ethereum and Solana.

Ways of limiting the emission

To overcome inflation and stimulate demand for coins, developers use different mechanisms to limit the emission.

Coin flaring

Burning is the withdrawal of a part of cryptocurrency from circulation. It occurs through sending coins to an address without the possibility of withdrawal. This mechanism is practiced to reduce the overall issuance.

For example, Binance burns its native cryptocurrency BNB every quarter. The number of coins withdrawn from circulation is calculated based on the value of the coin and the number of blocks created in the blockchain. The platform also burns a portion of transaction fees and uses the cryptocurrency to be destroyed to reimburse users.

Coin Freezing

Freezing is the temporary blocking of coins followed by a gradual release into circulation. It is used by cryptocurrencies with a one-time issue to create a temporary shortage. Often unfreezing occurs on a schedule or when a project reaches key development points.

Increasing the difficulty of mining

Increasing the difficulty of mining makes mining each new block longer. Because of this, the speed of coin generation decreases and the moment of reaching full emission is delayed. It also leads to a partial outflow of miners and the number of mined blocks drops, which also affects the number of new coins.

Decreasing rewards for mining

Due to halving – a decrease in the rate of generating new coins, the reward for mining blocks drops. This leads to a decrease in interested miners and distances the achievement of full issuance.

Issuance plays an important role in development and attracting investors, so its mechanism is customized to the specifics of the project. The wrong type of cryptocurrency issuance can lead to a lack of demand for coins. Due to this pattern, the issue is considered as one of the key indicators when choosing a project for investment.