The term “hard cap” is widely used across the crypto space – read on to learn what it means!
What Is A Hard Cap?
The hard cap definition usually refers to the maximum supply of a cryptocurrency that can ever exist. This value is set in a crypto asset’s underlying parameters and is closely monitored by the project’s community and associated analytics websites. Once this threshold is reached, the crypto in question can no longer be mined or created.
What You Need To Know About A Hard Cap
The hard cap plays a critical role in determining a cryptocurrency’s value by ensuring that it has a limited supply that cannot be exceeded.
However, in some cases, the hard cap parameter may be altered by errors in the code. One such instance is the infamous Bitcoin inflation bug that occurred on August 15, 2010. This bug broke Bitcoin’s hard cap of 21 million coins and produced 184 billion BTC out of thin air.
It was noticed and fixed quickly, taking only five hours for a soft fork to be rolled out, which reset the Bitcoin blockchain to its state before the incident and featured code that rejected output value overflow transactions.
You may also encounter the term “hard cap” being used when talking about the highest limit on the number of tokens that can be sold through an Initial Coin Offering (ICO). In this context, it relates to the maximum amount of funds that the development team is ready to collect in exchange for their tokens during the primary funding stage.
The ICO’s hard cap is opposed to the soft cap, which is the lowest sum that may be collected through the fundraising event. Failing to reach a soft cap often means that the funds will return to the investors, yet some ventures choose to operate with whatever amount they manage to get hold of.
Note that not all ICOs are capped, yet it is usually considered good practice to set at least a hard cap to be transparent with the project roadmap and limit whales.
