What is a Hard Cap in crypto?
The term “hard cap” in the cryptocurrency community can be perceived from two perspectives. First, a hard cap may be used to denote the maximum supply that will be created for a specific cryptocurrency. It is defined within the cryptocurrency protocol and embedded in the blockchain’s code. Setting a limit on the maximum available circulating supply for a specific coin or token creates a certain level of scarcity, which might positively affect the price. Consequently, the hard cap in this context doesn’t permit the creation of additional coins beyond the amount specified in the code. For instance, only 21 million Bitcoins will ever be extracted. Malicious attacks, bugs, and errors in the code could lead to changes in the defined hard cap.
Second, the term can be viewed from an ICO or IEO (Initial Coin / Exchange Offering) perspective, which indicates the limit about the maximum number of coins and tokens available for sale. The hard cap is associated with the number of funds the developers plan to raise by selling a predefined quantity of coins for the particular funding round. Projects developers define the hard cap or maximum quantity of tokens that will be sold during the ICO.