The concept of tokenomics is actually constructed from two words – token and economy. So tokenomics is really the study of economic aspects of a crypto token. Everything from quality, distribution, production, etc.
It’s very easy to get lost in the token economy and the valuation of a cryptocurrency. There are mainly 4 concepts that are important to understand that are linked to cryptocurrencies
- Max supply – Total number of coins or tokens that will ever be created for a cryptocurrency. For bitcoin 21 million.
- Market Cap – (units in circulation × price). Circulating units are the coins that are publicly available.
- Circulating supply – Total number of coins currently available on different trading venues (central or decentralized)
- Total supply – the total number of coins that currently exist (minus the coins that have been verified burned)
It is also important to know the difference between a coin and a token.
Coin – a cryptocurrency with its own blockchain. It is a coin, a currency and something you pay with. If a cryptocurrency is a Coin, it means that it has its own blockchain.
Tokens – By leveraging existing blockchains, it’s easier, faster and cheaper to create tokens than coins. The most obvious difference is that a token is primarily used to provide access to dApps (decentralised apps) as well as unique features within various services linked to cryptocurrencies, e.g. discounts of transaction fees. The value of a token can be influenced by the company providing the service where a token is to be used. It can for example. require a certain number of tokens to obtain a membership.