Hard Cap

Hard Cap, or hard limit, is a concept related to cryptocurrencies, and more specifically to blockchains (blockchain). It defines an upper limit, the maximum amount of a given cryptocurrency that can be created on a given blockchain. This limit is usually defined in the source code of a given cryptocurrency and is intended to control supply, prevent inflation and give the digital currency deflationary characteristics.
Key aspects related to Hard Cap:
Supply Limit: Hard Cap determines the absolute maximum number of units of a given cryptocurrency that can be created. For example, in the case of Bitcoin, the Hard Cap is 21 million coins.
Preservation of value: The Hard Cap is established to maintain the value of a cryptocurrency by controlling supply. Limited availability creates upward pressure on value, provided demand for the cryptocurrency remains or increases.
Deflation: Hard Cap introduces an element of deflation into the system, as the amount of cryptocurrency is limited, and thus, subject to growing interest, the value of the unit can rise.
Bitcoin as an example: bitcoin is one of the best-known cases of a cryptocurrency with a Hard Cap. A limit of 21 million bitcoin has been introduced, which means that there will never be more than 21 million coins in circulation.
Different models: Some cryptocurrencies introduce Hard Cap as a fixed value, while others, such as Ethereum, implement different mechanisms, such as EIP-1559, which introduces flexible issuance, but also defines an upper limit on supply.
Long-term plan: Hard cap is often part of a cryptocurrency’s long-term economic plan. Limited supply can attract investors interested in potential future appreciation.
Managing inflation risk: For some projects, Hard Cap is the answer to inflation risk, as it limits the ability to create new cryptocurrency units, a common tool used by central banks in the traditional financial system.
Hard Cap is one of the key economic factors that affect the characteristics of cryptocurrency. The introduction of a hard cap on supply aims to control and shape the value of this digital form of money.