What is Emission?
Emission refers to the rate at which new crypto coins and tokens are created by the blockchain and released to the public.
The Long Definition
In crypto, emission is the speed at which new coins and tokens are released.
Different cryptocurrency projects have different ways of creating and releasing new coins and tokens. In Proof of Work (PoW) blockchains like Bitcoin, this happens through mining. And in many Proof of Stake (PoS) protocols and decentralized finance (DeFi) projects, the process is called minting.
Think of a project or projects as companies or “businesses that operate on the blockchain. They use the blockchain to keep records of transactions. Sometimes these businesses create cryptocurrency tokens to serve their projects.
For example, Compound mints its own utility token called COMP. This token is used for governance, fee payment, staking, and liquidity mining in the compound ecosystem. The speed at which the project produces the token is called the emission rate.
The Significance of Emissions
When a crypto project “emits” new coins or tokens, it increases the supply of those coins/tokens in the market.
The speed at which they do this is important.
If they create new tokens too quickly and the demand is low, the price of the coins may drop (supply and demand).
In crypto-speak, this is called inflation because the business has inflated the supply of coins.
Inflation is not good, especially in the long term. Some developers try to control it by setting the emission to a very low rate or stopping it altogether at some point in the future.
Bitcoin (BTC) is a good example. It is designed to decrease emissions every four years. This is done through periodic events known as halving.
BTC also has a cap on the maximum supply. Having a cap means emissions are set to stop once a certain number of coins have been released. This ensures that emissions don’t go on forever. For BTC, this number is 21 million coins. No more Bitcoin will be emitted after that.
Additionally, some projects use burning to offset the inflation caused by emissions. Burning is another strange crypto term. It means removing tokens from circulation by sending them to an inaccessible wallet which reduces supply and, if demand increases, the price may rise.