Hard Cap (ICO) Definition

What is a Hard Cap?

The hard cap is the predetermined amount of a coin that will be created and distributed.
Hard caps are important to understand for a number of reasons. But in order to understand a
cryptocurrency hard caps, one must also understand how coin distribution itself works.

First, there is the circulating supply. This number refers to the active number of tokens
currently being traded for a specific cryptocurrency. The details of this will vary from coin to coin.
For example, some coins are pre-mined and released at one time during the ICO, while others
are mined over a period of time. Even others are released periodically after the ICO.
No matter how or when they are distributed, the circulating supply refers only to the number of
coins currently on the market.

Varying Supply

Second, there is the total supply. This number refers to the total number of coins in existence,
even if they aren’t currently circulating. It depends on the coin, but not every token that exists is
in circulation. This is often done to prevent users from dumping their coins quickly after
purchasing them and thereby preserve the life of a coin.

Finally, we have the maximum supply, otherwise known as the hard cap. This number refers to
the maximum number of tokens that will ever be created for a coin. As expected, this number
will vary between coins. For example, Bitcoin has a maximum supply of 21,000,000 tokens
while Ethereum has no hard cap.

The hard cap is what determines scarcity, which helps determine value. For example, if there
were a small “hard cap” on gold, the value for gold would increase. Conversely, if there was a
high hard cap, the value would go down. The same is true with cryptocurrencies, and this
information is valuable to potential investors as they decide which coin to invest in.