What is a hard cap?

A hard cap is the maximum supply of a cryptocurrency that can ever exist. It’s hardcoded into the blockchain’s code and sets a strict limit

A hard cap, also known as a token supply cap, is the maximum total supply of a cryptocurrency that can ever exist. It is set by the cryptocurrency’s founders and is hardcoded into the blockchain’s code.

This sets a strict limit on how many tokens or coins can be created, even if there is high demand for them.

What is a hard cap in crypto?

A hard cap is an important concept in cryptocurrencies, as it helps to ensure the scarcity of the cryptocurrency. This can help to boost the value of each token over time, similar to how the scarcity of metals like silver and gold contributes to their value.

For example, Bitcoin (BTC) has a hard cap of 21 million coins, which was set by its creator, Satoshi Nakamoto. This means that no matter how much demand there is for Bitcoin, the supply will never exceed 21 million coins.

Even if there is a period of low demand when some miners are not actively mining blocks, the rate at which new coins are created will remain constant until the 21 million-coin cap is reached, at which point miners will only be rewarded with transaction fees for keeping the blockchain secure.

This is in contrast to other cryptocurrencies, such as Ethereum (ETH), which do not have a hard cap on their supply.

The hard cap is also an important consideration for investors who are looking to invest in cryptocurrencies.

As cryptocurrencies become more mainstream, there is a growing interest from institutional investors, such as hedge funds and pension funds.

These investors are used to investing in assets that are in limited supply, such as real estate and stocks.

Cryptocurrencies can be a good fit for these investors because they offer the potential for high returns, but they are also a relatively new asset class, which can carry greater risk.

To attract these investors, cryptocurrencies need to be structured in a way that is familiar to them.

This includes having a hard cap on the supply of the cryptocurrency.

A hard cap helps to ensure that the cryptocurrency will maintain its value over the long term.

It also helps to prevent inflation, which can erode the purchasing power of any currency, cryptocurrency or fiat.

What is the soft cap in an ICO?

The term “hard cap” also shows up in the world of initial coin offerings (ICOs).

When projects raise money through ICOs, they usually set a hard cap, which is the maximum amount they aim to collect, and a soft cap, which is the minimum needed to launch the project.

Think of the soft cap as the minimum fundraising goal, while the hard cap is more of a stretch goal. The hard cap is usually set higher to allow for more fundraising potential, but it doesn’t always mean the project will reach that target.

For example, if a project sets a soft cap of $5 million and a hard cap of $10 million, it means the project will only launch if it manages to raise at least $5 million from investors.

If the project doesn’t reach the soft cap by the deadline, all the funds raised will be returned to contributors. However, if the project manages to raise more than $10 million, it will still only take the $10 million hard cap and any excess contributions will be returned.

Both the soft cap and hard cap are used to set clear boundaries for the project’s fundraising efforts, promoting transparency and allowing investors to make informed decisions.