Circulating Supply refers to the number of cryptocurrencyCryptocurrency is a form of digital or virtual currency that uses cryptography for security and operates independently of a central authority or traditional banking system. Cryptocurrencies leverage blockchain technology to gain decentralization, transparency, and immutability. Key Features: • Decentralization: Cryptocurrencies operate on a decentralized network of computers, meaning no central authority governs or regulates it. • Cryptography: Secure transactions and... coins or tokens that are publicly available and circulating in the market. It represents the portion of the total supply that is currently in the hands of the general public, investors, traders, and users, excluding tokens that are locked, reserved, or not yet released.

Components of Circulating Supply:

1. Publicly Held Tokens: Coins or tokens held by everyday users, investors, and traders.
2. Exchange Wallets: Coins or tokens that are currently available for trading on cryptocurrency exchanges.
3. Operational Wallets: Coins or tokens used by projects or organizations for daily operations, rewards, or incentives.

Exclusions from Circulating Supply:

1. Locked Tokens: Tokens that are locked up for a specific period, often in smart contracts, and cannot be sold or used.
2. Reserved Tokens: Coins or tokens set aside for a specific purpose, such as team allocations, which may be subject to vesting schedules.
3. Unmined Coins: In the case of cryptocurrencies like Bitcoin, coins that have not yet been mined are not part of the circulating supply.

Importance of Circulating Supply:

1. Market Capitalization: Circulating Supply is a critical component in calculating a cryptocurrency’s market capitalization. Market CapMarket Capitalization (often referred to as Market Cap) represents the total value of a company or cryptocurrency in the market. It is calculated by multiplying the current stock or coin price by the total number of outstanding shares or coins. Formula: Market Cap = Current Price of Asset × Total Number of Outstanding Shares/Coins Key Points: • Categories of Market... More = Circulating Supply x Current Price of the coin/token.
2. Investment Decisions: Investors often consider the circulating supply to assess the scarcity and potential value of a cryptocurrency.
3. Economic Model: The circulating supply can give insights into a cryptocurrency’s economic model, including inflationary or deflationary characteristics.

Factors Affecting Circulating Supply:

1. TokenA token is a digital or virtual representation of an asset or utility that resides on a blockchain. Tokens can represent anything from a unit of value (like a coin) to a set of functionalities and can be used for a variety of purposes such as payments, access rights, or as a means of exchange in decentralized applications. Key Points:... More Burns: Intentional destruction of tokens by sending them to a burnIn the context of cryptocurrencies and blockchain technology, "burn" refers to the intentional and irreversible removal of a certain number of tokens or coins from circulation. This is achieved by sending the tokens to a designated "burn address" – an address that is publicly visible on the blockchain but is inaccessible and has no known private key. Once tokens are... More address reduces the circulating supply.
2. Token Vesting: A process where tokens are gradually released over time, affecting the number of tokens in circulation.
3. Lost Coins: Coins that are lost due to forgotten passwords, lost private keys, or inactive wallets can effectively reduce the circulating supply.
4. Regulatory Actions: Seizures or freezing of assets by regulatory authorities can impact the circulating supply.

Challenges:

1. Transparency: Not all projects provide clear and transparent data about their circulating supply, leading to potential misinformation.
2. Dynamic Nature: Circulating supply can change due to various factors, making it essential for investors to stay updated.

Examples:

• Bitcoin: As of a specific date, if there are 18.5 million Bitcoins mined and 1 million are believed to be lost, the circulating supply might be considered as 17.5 million BTC.
• Ethereum: If a portion of ETH is locked in stakingStaking refers to the process of participating in the proof-of-stake (PoS) consensus mechanism of a cryptocurrency's blockchain by holding and "staking" a cryptocurrency in a wallet to support the operations of the network. This includes validating transactions and securing the network. In return for staking their coins, participants often receive additional coins as rewards. Key Points: • Proof-of-Stake (PoS): Staking... More or DeFiDeFi, short for "Decentralized Finance," refers to a movement that aims to create an open-source, permissionless, and transparent financial service ecosystem without the need for traditional intermediaries, such as banks, brokers, or insurance companies. DeFi platforms are primarily built on the Ethereum blockchain, leveraging smart contracts to automate complex financial transactions. Key Points: • Smart Contracts: At the heart of... More contracts, it’s still considered part of the circulating supply since it’s not permanently removed.